The Spending Myth

In George Cooper’s The Origin of Financial Crises: Central Banks, Credit Bubbles and the Efficient Market Fallacy, he credits a relatively prolific Norwegian-American economist, Thorstein Veblen, for coining the term “conspicuous consumption.”  Veblen studied the “leisure class” at the turn of the 20^th century and used the term to identify markets where demand actually increased as price increased for the same amount and quality of goods – suggesting that markets were, perhaps, far from perfect.  He was one of the first to suggest that the tidy models of economic behavior were false; they ignored man’s capacity to make irrational choices – an appetite of irrationality that would prove insatiable and cause Federal Reserve Bank Chairman Alan Greenspan – many years later – to, reluctantly, warn of “irrational exuberance.”  Of course, this irrationality was largely contained in Veblen’s day by the small number of people who had the financial capacity to behave irrationally, ergo the “leisure class” – a pleasing term for those with more money than sense. But that would change.

                  As the 20^th century unfolded and American power expanded after each of the first two World Wars, the numbers of those reaching a level of affluence rose steadily together with a hubristic claim to perception of value defined more frequently than not by price. More people had more money and, therefore, the capacity to make irrational assessments of price and value.  We segued from “conspicuous consumption” to “Keeping up with the Joneses” – a phrase originated by Arthur R. "Pop" Momand in a comic strip of the same name in the latter years of World War I.  The expansion of the “leisure class” meant our answer to the question, “What is wealth?” would be defined not by savings or investment – by Robber Barons’ tally of track miles or oil wells – rather, by consumption.

                  Cultural anthropologists must salivate about where we are today.  They have more than one hundred years’ evidence of our ingenuity and stupidity.  A perfect storm of brilliance and madness – frequently quelled by theological innovations replacing Calvinist notions of sacrifice with televangelist’s promotion of prosperity as the new benchmark of piety.  We traded the Sermon on the Mount (Matthew 5) for Luke’s prescription to enjoy the fattened calf (Luke 15:23) – let the feast begin!  We embraced consumption – how much we spend – as the definitive yardstick of wealth. No money?  No problem – just charge it.  In doing so we placed our future in the hands of those who find value not in price, but in our debt.  We tethered the future of our children and grandchildren to a pirate ship.  We are betting on mercy where ingenuity and innovation once stood. We have succumbed to our perversion of price and value.

                  This is the unique, albeit shameful legacy of my generation – of those who rose to the challenge of Sputnik; found freedom at Woodstock; and embraced the alchemy of Reagan, swagger of Clinton, and hubris of Bush. Our masterpiece of contrivance was papering the world with ether-backed credit default swaps – vapor paper – trillions of dollars of securitized myth that makes Bernie Madoff look like rounding error. Our current prescription? Spend more! We continue to measure our prowess by total spending rather than savings and investment.  Our military is presumed to be most powerful because we outspend the rest of the world, combined.  Yet, suicide bombers and improvised explosive devices bring us to our knees.  We believe we have the greatest healthcare and education systems because we spend more than anyone else, while forty-plus million go without care and our high school rankings in math and science plummet. Every data point we stare at to forecast an economic recovery is fathered by spending. As the economy sputters, we contemplate more “stimulus.”  After all, it got us where we are and that can’t be all bad, right?  Wrong.

                  It is time to straighten the irons.  It is time to change the discourse of wealth.  It is time to return consumption to the altar of avarice and rebuild America. It is time to save, invest, and yes, sacrifice.  Wealth enables spending; spending does not create wealth.