Our leveraged economy made it easy to fill two car garages, put a flat screen in every room in the house, and to have a 2:1 computer to user ratio in most middle-income homes. It allowed us to wait in line to buy iPhones that cost 5x another utilitarian cell phone, while sipping $5 cups of coffee just for the “experience”. Leverage and all its ignominious glory put a Starbucks on nearly every crowded corner, allowed every Best Buy to sit across the street from a Circuit City, and allowed people who would otherwise shop at thrift shops–for furniture with character–to fill their SUV’s up with an abundance of home furnishings at Ikea. Cheap money offered by leverage boosted the success of throw-away fashions and throw-away lifestyles. We ate out more than cooked, and as a result more and more five star restaurants flourished. Leverage provided a level of corporate earnings and personal spending that fueled one another. The symbiosis was a tango for airline companies, helping to spawn a brand new airline into a national player in less than five years. JetBlue’s rapid ascent was fueled by a peripatetic population of work-hard, play-hard types who longed for leather seats and televisions wherever they jetted. Leverage and all its misgivings provided economists the opportunity to dust off the century old phrase conspicuous consumption. In short, until credit markets seized, we had no idea how leveraged we really were, and how much we over-bought, over-developed, over-retailed and over-consumed.
With New York City apartment prices dropping in half over the last year, the expression that $5 million is the new $10 million carries some weight, at least in and around Manhattan. Today people no longer gloat about how much they have made in the market. Today we gloat about who has lost the least. Asset values of all shapes and sizes are deflating, and with less leverage at the consumer and corporate levels, demand for excess is being rightsized. But we are at a crossroads.
The quantitative easing being provided by the current administration is a strategy to stop the insanity of deflation. With few market participants willing to take or provide credit, the United States is using its own balance sheet to be the lender (and borrower) of last resort. The hope is that the Treasury will begin to fill the shoes of now defunct investment banks, strained commercial banks, hedge funds, pension plans, and other large institutional investors, and lenders.
But what is the end game of such policy? Sure stabilizing the pricing mechanism is an important goal, but is doing so without changing our pre-existing habits the best way to move forward? We are and we have been a service economy for quite some time. American wages grew along with our post WWII economy, fueling spending and leisure. Wages grew so much in fact that we realized we could no longer afford the goods we wanted if we had to make them ourselves. We became so dependent on the the mass production model that instead of curtailing our consumption we learned to exploit cheap labor around the world. As our standards of living improved, we could afford to “lift standards of others”. Thus we began outsourcing to countries whose standards of living were low enough to attract the quantities of labor necessary for an economic model based on mass production and mass consumption.
Eco-doomsdayers like to note that at present we currently consume more natural resources than the earth can produce. Considering that the top 20 countries ranked by GDP per capital by the IMF account for 50% of global per capita GDP, that leaves no room for sustainable growth in living standards around the rest of the world. There is physically no way the whole planet can live the way Americans have over the last half century. What is more important, is that Americans cannot afford to live the same way they have into the future. The global compression of credit and asset values is really just a warning shot around the developed world that our lifestyles are not sustainable.
A bright side that I see is that we are adept in building and running a service economy. The future of consumption is sure to be through subscription and through the pooled use of durable assets. The planet cannot afford to waste resources, and as such we cannot afford to waste assets for conspicuous under-consumption. A car that sits in a garage 80% of the year wastes materials and real estate that are precious and limited. Washing machines, excess technology, and the billions of throwaway products are not efficient uses of resources. Not to mention non-renewable energy sources and unsustainable sources and methods of food production.
Why not build on our service economy? Cooperative models can be successful, moreover they will be successful. Reduce, reuse, recycle was a lifestyle choice of yesterday. Tomorrow these movements will become the standard of living. Cars need not be owned by individuals. Fleet ownership is a much more efficient and effective use of materials and real estate. I began writing this in March of 2009, but as I edit it today, I am inspired to note that last week ZipCar announced it will be going public in the next year. Capital will be forced to flow into new business models, because as we put Chrysler and GM to sleep, we are now keenly aware that we no longer need that many new cars. Mass transit is wildly more efficient than customized transit, and today’s technology is already providing an integration of the two through advanced car pooling social networks. In the new economy, the government, national or local, needs to subsidize the fleet business model and mass transit. It should be difficult and expensive to justify individual car ownership. It should be financially burdensome and socially awkward for a single family under one roof to own multiple automobiles. Conspicuous consumers should be subsidizing sustainable consumption. Employers should be supportive.
We are at a cross roads to permanently affect behavior and consumption patterns. We need to seize this moment to change the economic model in this country from one of mass production and mass consumption, to one of sustainable production and cooperative sustainable consumption. The transition will breed new growth industries, new business models, and ultimately create a sustainable middle class. Car sharing clubs should be as common as individual car ownership is today. Cradle to cradle product development can be accomplished if manufacturers are forced to dispose of the products they make. Ownership should be through subscription for most products, and certainly those which are toxic to the planet. We cannot be mass consumers and individuals. Said another way, we cant have every emerging economy live the way we’ve lived for the last almost century. We need to refine and enhance our systems of consumption.
The mass consumption model will need to accommodate aggregate consumption in a less individualized way. Technology can help us feel like we are not dramatically changing our habits and patterns, but we cannot continue as we have. We have to begin to understand that idle assets are wasted resources.
More than stimulus, and more than price stability, what we need from our leaders is the courage to help us all understand where we’ve been, where we are, and where we are going economically speaking. Global crises don’t occur all that often. When they do, global leaders have the opportunity to bend ears around the world. At those moments in time global constituents are willing to consider change. We maybe get one or two chances a century to educate the entire society, we cannot let this opportunity pass us by. We need to replace our civilization with one that understands how to grow and succeed in a manner that is economically, socially, and environmentally sustainable.
When you finish reading this, start helping to create change, one person at a time. Turn off your unused electronics, lights or other devices, when you leave the room (even if its not in your house). Instead of throwing out things that may have value, try selling them on eBay or Amazon. Before buying something brand new, see if you can find a decent used alternative. Use the money you make from selling old items to buy new ones. Take care of the things you own so that they retain more of their value. Turn off the water while you are brushing your teeth. Before you buy a new car, consider leasing it. Consider buying a used car. Consider first if you even really need or want the car. Today that is probably easier since so many people are forced to cut back. Consider investing in a digital device if you don’t have one and choose to receive your favorite periodicals electronically. If you have a digital device, consider canceling all of your paper subscriptions. Make sure to cancel catalogs you don’t want or use. Make sure to recycle as much as your local area will permit, and be bold enough to encourage new initiatives for the things that you know should not end up in a landfill. Give things away, don’t throw them away. If it is available find an ESCO for your electricity consumption. Some utilities now allow you to choose the source of power you want to consume. In New York City for instance you can choose wind and hydroelectric power over coal through Con Ed who now contracts with independent energy providers. If you can afford it, eat organic, fair trade, and locally produced foods. Choose to consume goods and services from companies whose business model is working towards a sustainable future, and boycott or try to avoid the most unsustainable companies on the planet. When furnishing a home, the best thing is not to over-buy, the next best thing is to try to buy materials that have not, and will not hurt the planet, and that ultimately could be reused one day. If you eat out, find restaurants that are environmentally conscious. If you order in, ask them not to put in items you don’t need (cutlery, napkins, condiments). Moreover, ask the worst offenders to start a new policy of asking customers if they want cutlery, napkins and condiments, so that they don’t automatically provide them to people who simply throw them out. Volunteer once in a while to keep your neighborhood clean. Trash in the garbage can is less likely to end up in a waterway. If your employer or town does not recycle, ask them to. If you already watch what you put in your body, start watching what you choose to put in your home or office. If you’ve learned not to overeat, try not to over-consume. If you’ve learned to eat healthfully, then try to consume sustainably. If you see a business or industry that is run unsustainably, start your own company and build a model that is more sustainable, you will likely find a cost advantage and you will immediately have a loyal customer base.
All in all, at this point there is nothing terribly revolutionary that has to be created or invented. All we need now is the revolution to begin.
Posted by greenewable 
Greenewable's Weblog 
The Great Transgression
June 14, 2012The United States Central Bank wether it likes it or not is ultimately responsible for global monetary policy either by controlling the default risk free rate or by nature of our reserve currency.
The current Fed has responded, with little precedent and arguably appropriately during the initial phase of the 2007-2009 crisis by printing money. They have set short term rates at zero and become the central banker to the world printing trillions of additional dollars that the world can’t seem to get enough of, particularly recently. But is this course sustainable?
Conscious capitalists argue our economy should be built and run in a sustainable fashion. This doesn’t mean just making us drink wheat grass shakes, limiting 16 oz soft drinks, or putting solar panels on our house. The point of the movement, however fragmented it is, is to design and build sustainable replacements for our unsustainable and brittle physical and economic infrastructure, products, services and systems. Sustainability is more than about feeling good about a single act or product which is selfishly individual. It’s about national security, economic development, job creation, creative destruction, and ultimately the disintermediation of unsustainable products, services and systems. Sustainability is built on a tenet of scarce resources and attacks flawed technology, flawed accounting, flawed assumptions and flawed systems-level thinking. The neo-classical economic model’s definition and treatment of externalities as costless and priceless losses to society is a failed systems-level paradigm.
You cannot solve recurring problems with larger versions of the same solution. This idea is no different than asking your two year old not to throw food on the floor. When that fails some people tell then not to do it, and then yell, scream and even resort to physical intimidation or violence. Even if the physically violent response “works” what do we think we’ve imparted to that child? Does the toddler learn manners and social graces, both of which would be sustainable lessons that they would use and pass on with adults and peers? No, violence only teaches fear. Think of any bully. A toddler raised in fear grows up to be angry, you don’t need to believe in psychology at this point to have observed it. But I digress.
The Fed, in it’s early and appropriate response to the liquidity crisis after Lehman failed has created a system of free money, and worse, a systems-level thinking of free money which at its core-no text book needed-is unsustainable.
If money is free, it is worthless. If the currency is worthless then the entire economic system is broken as we are seeing in some form in Greece right now.
This is the purpose of the Fed, in their own words from their website:
“The Federal Reserve System, often referred to as the Federal Reserve or simply “the Fed,” is the central bank of the United States. It was created by the Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system. The Federal Reserve was created on December 23, 1913, when President Woodrow Wilson signed the Federal Reserve Act into law.”
The Fed is failing its own mandate. Endless ZIRP policy and and unabashed money printing is NEITHER making us safer NOR creating more flexibility. Quite the contrary. The fed at the very least is digging us into an unsustainable trajectory that will ultimately end with even harder decisions than were made in 2008. I don’t believe the current Fed is evil, stupid or purely politically motivated, although I have my doubts on the last one. The biggest problem, which is similar to problems of the Bush administration is hubris and dogma.
The only way to create a safe and flexible backdrop for economic activity is to have the ability to move levers in multiple directions. This requires an extreme bias for moderate policies in any direction, something like steering an oil tanker in a narrow channel. An oil tanker responds too slowly to know exactly how far the captain is correcting the direction so he uses extreme caution and slight movements to stay centered and nimble. This philosophy and centeredness is completely lacking at the Fed today.
As we dig ourselves deeper into a position of sovereign indebtedness and take steps closer to eliminating the value of currency altogether we put ourselves closer to the patsy seat at the global poker table leaving little room for flexible strategy. A strategy defined by faith and hope is better suited for men of God, not leaders of the free world.
Obama ran on a platform of Hope. It was a powerful campaign, but Hope is not an economic strategy nor a sustainable model for success.
Bernanke is convinced that the depression could have been avoided using policy tools he has unsheathed since 2008. Let’s assume he is right. If not the Great Depression then what would we have ended up with instead?
A Great Repression? As noted by many others our current system of penalizing savers in favor of borrowers is a form of financial repression.
A Great Decession? The current status quo has seen the US slowly erode once dominant positions in global economic policy, trade policy, foreign policy, global defense policies and a host of once untouchable pole position of global power. A weak economy and a weak currency is a recipe for a slow fall from grace. A strong economy AND a strong currency make for an unusual bargaining position, just look at Germany in the context of broader Europe.
A Great Egression? The numbers of US Citizens renouncing their citizenship while small in absolute numbers is beginning to balloon in relative numbers. More and more wealthy Americans have lost interest in or confidence in an American future.
A Great Oppression? When wealth becomes concentrated by the few, regardless of their benevolence, there ensues a form of economic oppression where it grows increasingly harder for “just anyone” to amass great wealth. Simply put the super rich spend a small
fraction of their wealth and that slows the velocity of money in the system, limiting how often dollars change hands.
When all this plays out, and we look back in 80 years it would not surprise me that this difficult period is reflected upon as The Great Transgression. A period of time where the economic rules of law were totally and unilaterally transgressed at the expense of “saving the system”. A period where credit seniority only held weight IF the government or some other supra national entity did not intervene. A period where the many were led by the few further from their goals and dreams guided by fear of harder outcomes. A period of time where multiple transgressions were made possible through the growing frequency of global panics.
Bernanke may successfully lead us away from the known path of a Great Depression. But does he know where we end up if we maintain the current unsustainable course?