Thursday, October 29, 2009

The Effects of the Crisis - Part 2


Picture: Our identity as consumers is deeply entrenched. Culture Jamming highlights this by deconstructing, playing with and questioning the things that we usually take for granted.

This is the second part in a set of texts about the losers of the American economical crisis. In the previous text, I laid the foundation to this series of texts and described the connection to oil and peak oil. I also described changing habits among Americans who are not personally hit by the crisis, but who nonetheless have chosen to limit their consumption. In this text I move on to those that do no have the choice to continue consuming as before, but are forced to consume less.

Suddenly they notice that the habit of buying whatever you want whenever you want it - a habit that was taken for granted until recently - is no longer an alternative. In order to be able to give her daughter all the gifts she wanted for Christmas (and these gifts were neither small nor few), the young mother Kristen realized that she had to abstain from the designer jeans she wanted for herself. Personally I struggle to see this as the "sacrifice" it was described as in the article in question. But you get some clues to the perceived importance of belongings when mommy Kristen says: “I want her to be able to look back, and say, ‘Even though they were tough times, my mom was still able to give me stuff.’ ” One can easily get the impression that Kristen confuses "stuff" with "love". Whatever the reasons, this translates into problems for shopping malls and the retail business in the USA.

The tendency that you can no longer get what you want whenever you want it is exemplified on a smaller scale by the coffee franchise Starbucks. They have presented sobering economic results, and have started to close down coffee shops. Where people previously did not think twice about buying a four dollar "Grande Mint Chocolaty Chip Frappuccino® blended creme with Chocolate Whipped Cream", many now abstain from buying at all, or buy their coffee where it is cheaper. Last summer it was announced that 600 of the 12 000 caf├ęs in the US were to be closed (but new coffee shops were opened elsewhere). In the beginning of this year the time had come to close down a further 300 coffee shops (just Manhattan had previously hosted 200 Starbucks coffee shops). In a humorous article in Newsweek, an even closer connection between Starbucks and the global financial crisis is made:

"I propose the Starbucks Theory of International Economics. The higher the concentration of expensive, nautical-themed faux-Italian branded frappuccino joints in a country's financial capital, the more likely the country is to have suffered catastrophic financial losses. [...] My tentative theory: having a significant Starbucks' presence is a pretty significant indicator of the degree of connectedness to the form of highly caffeinated, free-spending capitalism that got us into this mess. [...] The fact that the company [...] felt there was room for dozens of outlets where consumers would pony up lots of euros, liras and rials for expensive drinks, is also a pretty good indicator that excessive financial optimism had entered the bloodstream."

If we move towards the nitty gritty details of everyday life, I already last autumn read about how economically strained families cut down on daycare expenses for their children. If you lose you job, your children might simply have to stay at home until mum or dad finds a new job, and if you involuntarily have your working hours cut down, children might be in daycare for only a few days a week. It is worth mentioning that daycare can be very expensive in the US. According to the National Association of Child Care Resource and Referral Agency, the average cost of daycare is between 3 400 and 10 800 USD per year. I pay around 2000 USD/year for full-time (heavily subsidized) daycare here in Sweden and the cost for the second child is only 500 USD/year. And I pay the maximum amount - if your family income is lower, you get away with paying less...

If you have two or more children in daycare, it's doubtful whether (usually) mum's less well-paid job pays enough to cover the extra expenses that goes with professional work (formal clothes for work, gas, maybe an extra car etc.). ”In every state in the country, the monthly child care bill for two children is higher than median rent payments and as high or higher than a mortgage.” Expensive and pedagogically excellent daycare centers that earlier boasted long waiting lists now see these waiting lists as well as the number of children attending melt away. Some fear that more children will now attend lower-quality daycare that can be described as "parking lots" for children. Also (expensive) private schools have felt the same problems.

We can now also see a trend in the opposite direction, when (highly educated) American women who previously had chosen to stay at home, feel obliged to return to the labor market when their spouses become unemployed, start fearing for unemployment or have their salaries lowered. Alternatively, the value of the family's investments and/or house have now reached a level they don't feel comfortable with. This is to some extent a luxury problem affecting those that earlier had the choice not to work:

"Several studies have found that two different groups of women are likely not to return to work after giving birth: affluent ones and poor ones unable to afford child care."

Americans in the upper middle age (the Baby Boom generation) also start to worry that they don't have enough to live comfortably for 20 years after they retire. According to the Center for Retirement Research, a pensioner needs approximately 75% of his earlier income to continue to live at the same standard of living:

"while lower-income workers face a worrisome retirement reality all their own, middle- and upper-middle class workers likely face the biggest living-standard shock. That's because lower-income people can replace a good chunk of their preretirement income with Social Security, and high-income people generally have enough personal savings. But middle-class workers may see their relatively comfortable life change drastically come retirement."

None of the "traditional" ways to save money for retirement - all of them different models of investments in a growth economy - have managed to withstand the crisis. On average, the investments of the middle class have lost 40% of their value. Those who now have seen almost half their savings disappear feel betrayed by brokers, banks, funds, stock analysts, auditors, the financial authorities, the central bank and CEO's.

In the last two years, the age at which Americans expect to retire has increased with two years, and at a time when they should be free from debt and plan for lower incomes, many find themselves heavily in debt. The wealth that the elderly have is often tied to the house they live in - a house that has lost in value and today is hard to sell. Even elderly who already had retired, now find themselves at work again: "here they are, many in their 60s, 70s and beyond, desperate to find work so they can keep a roof over their heads and food on the table."

The sceptical reader might ask: 'but haven't stocks gained in value this year?'. Shouldn't this compensate for the earlier losses? Unfortunately the answer is 'no', especially for elderly who are currently living on their savings:

"Sure, the S&P 500's almost 35% rebound since March is good news, but it's not enough to make savers whole. From its peak in Oct. 2007 through this March, the S&P 500 lost almost 49%. Shave 49% off a $100,000 investment and you'll need a 96% gain just to get back to even. Younger savers can overcome that hit with time, but it's a lot tougher for people close to retirement, and nigh impossible for retirees forced to pull money out to live on".

I touched upon the new frugality and the changed attitudes towards spending money in the previous text and I return to the topic here. Many people have been letting the things they buy communicate taste, interests and values. Carolyn Baker discusses this in a text about shopping, consumerism and identity:

”buying and consuming have become part of the national culture and offer people an identity - the identity of a consumer, which -many will now be forced to abandon. Additionally […] people have come to believe that they are what they buy, and the more expensive and coveted brand or product makes a statement about who one is. […] for some, the inability to consume may be creating a fundamental existential crisis in terms of losing one's identity. "

The economical crisis undermines a life style built on spending money. To be forced to shed expensive habits and having to buy less is painful for some, and has been compared to drug withdrawal. At the same time, individuals who change their habits and take control over their economy step by step notice that they stand on a new and more stable ground and may feel a new confidence - even if they are on a materially lower level than before. It is also likely that the longer and more lasting the economical crisis, the deeper and more lasting will the (psychological) effects be for years and decades to come

Psychologists have noticed that traumas can cause changes in behavior, and the deeper the trauma, the bigger the changes. A near-death experience often makes people fundamentally change their attitude towards the importance of material success compared to personal development and relations. If you lose your job during a short-span economical downturn, it is easy to regard this as an isolated and random event with little connection to habits, attitudes and values. But to the extent that many now go through "economical near-death experiences", this might lead to a fundamental shift of values in many people. Half of all Americans now feel that they would have economical problems within one month after losing their job, and this is an uncomfortable feeling that is difficult to forget once it has taken root. Especially in combination with knowledge that this has already happened to friends, neighbors or relatives.

Some go one step further and become "economic survivalists". I now make a short diversion and return to the topic of last week; people who voluntarily cut down their expenses and choose a lower economical standard rather than being forced to do it (against their will). Nonetheless, I think the examples below are interesting since some of the proposed measures are still unthinkable for most people, but might very well become necessary for increasing numbers of individuals in the future.

The Wojtowicz family in Michigan “disconnected the satellite TV and radio, ditched their dishwasher and a big truck and started buying clothes at resale shops. ’As long as we can keep decreasing our bills, we can keep making less money’ ” says daddy Wojtowicz. His job as truck driver previously took him away from home for weeks on end, and when the salary started to shrink, the family decided to drastically change their lifestyle. Since then, they have bought pigs and chickens, and they plan to start growing food and to buy a wood stove. They have less money today and live more frugally, but are rewarded with more time together and they feel safer and sleep better at night.

In spite of their frugal lifestyle, they are outperformed by Jim Merkel, author of the book Radical Simplicity and the website Since Jim consciously makes sure he earns less than 5000 USD per year, he doesn't have to pay any income tax. In spite of the fact that 400 USD per month sounds like a very moderate amount of money, more than half of the world's population get by on a tenth of that sum, or 40 USD per month...

Merkel lives in a 20 m2 large cottage in Vermont and he eats mostly organic food that he has grown himself. He is no lunatic, but a conscientious person who in his "earlier life" worked as an engineer selling weapon systems, but who step by step and over a longer period chose to live the consequences of his convictions. The article about him is well worth reading. Merkel is rational but extreme and the economical crisis has completely passed him by (since he has voluntarily decoupled from the mainstream global economic system). Merkel is a survivor who surely would survive on eating bark from trees in the forest, but in spite of having gone further than 99.99% of all westerners, there are many interesting thoughts in his life philosophy and in his way of living.

This text has been about those who are forced to change their habits and lower their standard and expenses. In part three of this series of articles, I will write about those who have it worse and who have been hit more directly by the economical crisis.

I almost forgot to mention the queen of simple living, Sharon Astyk. A portrait of her in the New York Times is a good introduction before you take on her blog (which I subscribed to). A quote from NY Times:

"Others may see [her and her family] as colorful eccentrics, people with admirable intentions who have arrived at a way of life close to zealotry [...] Ms. Astyk has heard such talk but says her neighbors’ attitudes have softened as energy prices have risen. “People have moved gradually from ‘Sharon is a fruitcake’ to ‘Sharon is a fruitcake who might make some sense,’ " :-)

This text was originally published in Swedish on October 3, 2009.

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