Ed Miliband, “The Inequality Problem”, London Review of Books, February 4, 2016
I have a problem with the word “consequence,” which gives the impression that increased income inequality necessarily leads to increased consumer debt. In certain times and in certain places that simple equation may hold true. The necessary consequence of an increased income gap between serf and landlord is an increase in the serf’s obligations to the landlord. On the other hand, in the third world or in undeveloped sectors of a developing economy, those at the bottom of the widening gap do not have the assets or earnings potential to incur debt; they simply become more and more impoverished.
In any case, whether we’re talking about a vassal in 12th century France squeezed by a landlord who wants to keep up with the Lefebvres who want to keep up with the Capets, or a Maharashtran cotton farmer who cannot subsist on cotton prices set by agribusiness, we are not talking about “consumers.”
A consumer, according to the first definition I find in Goo-Goo, is “a person who purchases goods and services for personal use.” As the word is used today by economists, politicians, hucksters and us ordinary folk, a person who cannot afford food or shelter, someone relying on charity or government subsidies to live, someone homeless, does not count as “a consumer.”
Miliband’s “millions” of middle-class consumers who have ended up “borrowing beyond their means” as the income inequality gap has grown wider, did not incur unmanageable debt because they did not have enough to eat or because they could not afford a place to live. If their increased debt was a consequence of increased inequality, then we have to wonder: what necessitated that consequence? Why did they “need” that money they did not have? What did they go into debt to buy?
In this country, some of that unsustainable borrowing can be laid at the door of the fabulous costs of health care and education. Someday economists will study the immensely inflated costs in these two sectors as a unique 21st century American kind of bubble, a bubble pumped up by extortion (“pay or die” or “pay or spend your life at a minimum wage job”) instead of by the traditional bubble inflator, hysterical incitement to greed (“buy this tulip bulb, buy these stock shares, buy that house, and double your money next week”).
Setting aside the American phenomena of the overpriced necessity of health care and the overpriced perceived necessity of a college degree, what do consumers in Europe and consumers in the US who have good health plans and no children, or children so smart that they get scholarships or so stupid that college is out of the question, who rack up unconscionable credit card debt, spend it on? The answer is “goods and services for personal use:” telephones, other digital gadgets, video games, cars that are more like rec rooms than machines for getting from one place to another, impulsive purchases (the impulses suddenly sparking when marketers’ exhortations achieve synaptical overload), such as programmable waffle irons, exercise machines, robotic lawn sprinklers, vibrating chairs, cappuccino makers, beer-making kits, towel warmers, white sound machines, immense television screens, how-to books (live to 100, become a millionaire, attract the opposite sex, raise successful children), etc., until the already maxed-out credit cards must be pulled out once more to rent a storage space to keep all the stuff, and that sine qua non of the good life, entertainment – cruises, tours, theme park vacations, and $100-per-entree meals at crowded, noisy restaurants owned by celebrity “chefs” or just celebrities, period.
So, let’s go back to Miliband, who agrees with Stiglitz that in an economy with preposterous income inequality, “the middle class is too weak to support the consumer spending that has historically driven our economic growth,” consequently “millions of people end up borrowing beyond their means.” Much of that borrowing – let’s say half of it, for argument’s sake – is to purchase goods and services that the consumer may want, but does not need. You could say that the wisdom handed down fifty years ago by one of our greatest sages has been turned upside-down: You can't always get what you need, but if you try sometimes you might find you get what you want.
I hate to call out a Nobel-prize winner on a basic economic principle, but our economic growth has not “historically” been driven by consumer spending. Perhaps that is true for the last fifty years or so, but before then – up until the 1960’s perhaps – economic growth was driven by corporate and government spending. Even before the war boom, it was not how much consumers bought that made our country and other developed countries economic powerhouses. What made economies grow was how much was spent for the labor and materials it took to build the factories, the infrastructure and the retail outlets to produce, transport and sell what consumers bought. The economy of the industrial revolution grew as suppliers spent money to meet burgeoning consumer demand. The post-industrial revolution economy has grown as consumers spend money to meet ballooning industrial supply.
According to Stiglitz, all that crap bought on maxed-out credit cards by a weakened middle class is necessary – necessary not for the consumer, but for the economy as a whole. It is a sacrifice the consumer makes in order to maintain “the consumer spending that [drives] our economic growth.” Is that as absurd an idea as it sounds? It is, if consumers are independent individuals blessed with free will. It is not absurd, if consumers are subservient serfs, in thrall to an economy that, like cancer, must grow even if eventually it destroys its host.
We wonder about an ideology or religion so powerful that people are willing to blow themselves up for it. What do we call whatever it is that makes people go into usurious debt for silly things they don’t need? (Admittedly, that’s not as stupid and self-destructive as blowing oneself up, but still...) It is not exactly an ideology, nor is it a religion; there doesn’t seem to be a word for it yet. Until someone comes up with something better, let’s just call it fraud.