As we stand now, in the midst of the worst financial crisis in recent American history, there is plenty of blame to go around. For the most part, blame has been rightly directed towards Wall Street for its greed and recklessness, and at Washington for its incompetent regulation and inability to fix the problem. However, one of the primary culprits in the financial crisis has heretofore largely escaped criticism – the American Consumer.
For the last 25 or so years, Americans have been on a spending spree. Our houses, cars, wardrobes, and gadget collections have all gotten larger and more expensive. Long gone are the days of frugality and good value. In their place stand opulence and the Consumer Culture. To be sure, Corporations (including the media) have encouraged this behavior. But we've gone along, willingly.
However, while all this spending was going on, the American Consumer was not necessarily getting much richer. Real incomes increased much more slowly than consumption, and as a result, our savings rate decreased and net debt increased. Also, our economy became increasingly dependent on consumption.
Fast forward to today. Consumption in the US is about to fall off a cliff, and the US economy with it. Piggy banks have been emptied and credit cards have been maxed out. American Consumers are so laden with debt they cannot spend another dime. And this is before things get really bad. The lay-offs are coming soon. Unemployment will shoot up at least another few percent (5M jobs lost?), credit will remain unavailable, so consumer spending will have nowhere to go but down, putting more pressure on the economy, causing more lay-offs, and the vicious cycle continues.
So what happens next? The Consumer Culture that has permeated Western Culture will have to change. Perhaps it will again be cool to be frugal (Warren Buffett, anyone?). Perhaps we will focus more on the non-material aspects of our life – spending time with family, friends, community – import parts of life that have too often been neglected in our race to produce and consume more. And perhaps that is the silver lining. There can be no doubt the American Consumer has been culpable in the build-up and the decline of the American Economy. But in the end, perhaps that is okay. Perhaps the Financial Crisis will be the wake up call people need to appreciate the things in life that have nothing to do with the economy.