With the effects of worldwide economic instability beginning to show up stateside as more than just a few thousand layoffs in obscure trading divisions at Merrill Lynch, Bear Stearns, et al., one searches for a meaningful discussion of macroeconomics in the mainstream press. Instead, as the prospect of global economic meltdown becomes more balefully real, the typically schizophrenic moral harangue aimed at the humble American consumer simply grows more pronounced.
On the one hand, financial advice columnists chide consumers for irrational exuberance during the economic recovery that began in 1992. They cite astronomical levels of personal debt (the Consumer Federation of America estimates that 55 million households carry an average credit card balance of $8,000). They point to the number of personal bankruptcies (Visa estimates the current number at 1.3 million and projects 2.2 million by 2001). And they express dismay at a November Commerce Department report showing that, for the first time since the government began tracking the figure on a monthly basis in 1959, the savings rate of Americans was actually negative (-0.2 percent).
Commonsensically casting "dissavings" as the bogeyman, such cracker-barrel home economists inevitably advise us to pay off or consolidate debt and increase savings. Some spice up their reproachful advice by pointing to the specter of worldwide deflation: a drop in overall prices that, if it occurs here, would make existing debt burdens feel heavier as the dollar rises in value. But the overall message remains the same. In the words of the co- authors of Invest in Yourself, a recent self-help book on money-saving strategies: "Paying off your credit cards is one of the best investments you can make, period."
On the other hand, the professional business press warns that irrational pessimism could become a self-fulfilling prophecy, as any shortfall in consumer spending will be translated directly and willy-nilly into layoffs and wage cuts. Proponents of this line of thinking often introduce John Maynard Keynes' "paradox of thrift": Frugality can suppress overall demand, thus doing more damage even than excessive spending. A fable of excessive frugality appeared in early November in the Wall Street Journal, which reported that some investors in Japan were paying so much for six-month Treasury bills-a safe, highly liquid investment with a guaranteed return-that they were actually locking in negative yields. Investors, in other words, were willing to get back only 99 percent of their money rather than risk the prospect of losing it all.
Unlike the financial fitness gurus, who often see no system larger than the household, these analysts have their eye on the international balance of trade. As Asia tanks, their advice is to praise Greenspan and pass the charge card. "Spending has been a bulwark in the economic expansion," said a Dow Jones news report, implying that high rates of consumption are the only way to keep recession, deflation, and depression at bay.
Obviously, the implicit moralizing underneath all this talk of recession, depression, deflation, and dissaving is completely at odds with itself. The hypothetical consumer isn't in control of the economy, but is merely a scapegoat for a press unwilling to focus its attention on larger forces. This becomes especially apparent when calls for frugality and optimism appear side by side in the very same article -- as they have in Newsweek, the Los Angeles Times, and the Wall Street Journal, to name only three instances.
But the lack of a coherent attitude toward consumers isn't what's fundamentally wrong with national coverage of economics. One can blame or not blame the consumer, but, as with most social sciences, economics isn't as much a matter of a single right answer as it is of what questions you ask. For the most part, financial writers who focus on consumers are just refusing to question the forces that act on the consumers themselves -- namely, those forces that facilitate the unregulated two-step of capital across national borders and play a key role in both rising consumer debt and growing consumer anxiety.
James K. Galbraith, noted economist and professor at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin, believes that global economic turmoil can be explained, at least in part, by the refusal of banks and financiers to pay attention to any investing criteria beyond mere profitability. "You had financial institutions, particularly banks, putting their money in overnight loans to the government banks of Russia," he says. "They put it in huge loans to Long-Term Capital Management and similar hedge funds. They put it in speculative instruments such as mortgage-backed securities."
When these profoundly unstable gambles collapsed ("and it was more or less predictable that at some point they would," Galbraith says), financial institutions faced the prospect of putting their own sizable houses in order. "The banks, having been burned, started cutting jobs, cutting operations, and cutting loans to ordinary businesses," says Galbraith. "So they became the initial spur of the slump in business activity."
Fat-cat bankers are always a fine replacement for the consumer scapegoat, and Charles J. Whalen, senior economist at Cornell University's Institute for Industry Studies, adds another: U.S. multinational corporations. "For over a decade, U.S. corporations have been looking at expansion into foreign markets -- both in terms of production and sales -- as the key to their future success," he says. "In the process, American wages have stagnated. Workers have responded to this stagnation by taking on more debt. While there was some caution about this practice initially, the long, cyclical expansion and stock-market boom helped to ease fears."
Now, with overseas economies collapsing, these multinationals may rely on American consumers more than ever. But if consumer confidence flags, Whalen believes people will unavoidably feel reluctant to take on more debt. "We enter the next downturn disadvantaged relative to past downturns," he argues, "precisely because consumers have felt the need to rely so much on debt during the current recovery. This will mean less willingness and ability to engage in dissaving...when such dissaving would be most useful for the individual and the nation."
Furthermore, Galbraith suggests that any individual fault lies not in the behavior of working-class wage earners -- who often have to borrow just to make ends meet -- but rather in the behavior of those who actually have enough to invest. In this analysis, it becomes clear that the much-discussed "consumer" is really a catchall term that makes social classes conveniently disappear.
Middle-class investors, Galbraith points out, now lust after the same high returns sought by banks and super-rich hedge fund speculators. Instead of putting their paychecks into local credit unions or savings and loans -- institutions where the money might be more likely to go toward home mortgage loans or community businesses -- "people get used to being able to put their pension funds in Hong Kong," Galbraith remarks dryly. "They're going to resent it if you suddenly tell them that's no longer something they can do."
Really, the key problem with the Consumer Is Always Right/Consumer Is Always Wrong model is that its simplistic dichotomy leaves out other forces -- leaves out, in fact, hulking 800-pound-gorilla-size macroeconomic forces that have a far greater impact than abstract measures of consumer confidence or even the concrete details of individual spending habits. Of course, teaching consumers how to shoulder the burdens of the global economic order is a lot easier than trying to help them figure out what political actions and monetary policies might actually change the structure of the international financial system for the better. Galbraith, for one, is a strong supporter of the Community Reinvestment Act, regulatory reform in the banking industry, and a sunset review of the Federal Reserve, which he calls, in his recent book, Created Unequal: The Crisis in American Pay, "the most ridiculous of all government agencies." Whalen advocates the promotion of "labor-market institutions and corporate human-resource strategies that can prevent heavy reliance on consumer debt" as we move forward into the next business cycle. Ironically, the media's focus on individual actions distracts consumers -- also known as people -- from the way their collective, organized action might affect and even transform the forces at work upon them.