>Date: Wed, 25 Oct 2000 04:00:14 +1300 >From: "Janice" <[EMAIL PROTECTED]> >Subject: [MAI-NOT] Another Wolf At The Door > >"In 1994, 780,000 Americans filed for bankruptcy. By 1999, the number of >bankruptcies had soared to 1,281,000. US savings are now at -0.2%. This >article >discusses the scenario which brought about the 1930's crash. In the current >situation, any number of external events could tip the scale, with potentially >calamitous consequences. If the energy crisis were to deepen, raising fuel and >energy costs, or the stock market were to experience a sudden and sustained >down-turn, or major lending institutions were to pull back on their loans, the >effect on all of our lives could be sobering indeed" > > >Another Wolf At The Door, Exactly Like The Roaring 20s, >The Latest Economic 'Miracle' Has Been Bought On Credit > >by Jeremy Rifkin > >While the US presidential debates were in full swing, I was pondering what >I would >ask the candidates if I had the opportunity to pose just one question. So >here it >is, Vice President Gore and Governor Bush: are you at all concerned about the >mounting consumer debt spreading across every demographic sector of the United >States population? > >Gore and Bush seem to agree that the economy is humming, and have chosen to >debate >merely how best to allocate all of the surplus revenues. In the meantime, they >both >ignore a darker reality, one that could quickly change all of the up-beat >economic >forecasts coming out of Wall Street and Washington. > >Although economists and politicians don't want to talk about it, the fact >is that >the "American miracle" has, to a great extent, been bought on credit. It is >impossible to understand the dramatic growth of the American economy and >reduction >in US unemployment in recent years without examining the close relationship >that >has developed between economic expansion, job creation and the amassing of >record >consumer debt. > >Consumer credit has been growing for nearly a decade. Credit card companies >are >extending credit at unprecedented levels. Millions of American consumers are >buying >"on credit", and because they are, millions of other Americans have gone >back to >work to make the goods and perform the services being purchased. As a >result, the >economy seems healthier than ever. > >Today, according to the Federal Reserve, Americans are spending more than >they are >taking in, marking the first time since the Great Depression that the >country has >experienced a negative savings rate. Just eight years ago the average >savings rate >in the US was 8% of after-tax income. Savings are now at their lowest level >- 0.2 >% - since monthly records began in 1959. > >Britain is fast following the American lead. In just the past year, the UK >household savings rate plunged from 6.7% to 3%. If it continues to decline >at this >pace, the savings rate will likely be negative by this time next year, with >potentially ominous consequences for the economy and society. > >An analogous situation occurred in the 1920s. Like today, that was a period of >great economic change. > >Electricity replaced steam power across every major industry, greatly >increasing >the productive capacity of the country. Productivity gains, however, were not >matched by a significant increase in worker compensation. > >Wages remained relatively flat, while many marginal workers lost their jobs >in the >wake of cheaper, more efficient technology substitutions. By the late 1920s, >American industry was running at only 75% of capacity in most key sectors. The >fruits of the new productivity gains were not being distributed broadly enough >among workers to sustain increased consumption. Concerned over ineffective >consumer >demand, banks and retailers extended cheap credit in the form of instalment >buying >to encourage workers to spend more and keep the economy growing. By late 1929, >consumer debt was so high it could no longer be sustained. Even the bull >market >was >being stoked by record purchases of stocks on brokers' credit. Finally, the >entire >house of cards collapsed. > >The short-term substitution of consumer credit in lieu of a broad >redistribution >of >new productivity gains is a subject that has received little, if any, >attention >among economists. Still, the fact remains that great technology revolutions >generally spread quickly, once all of the critical elements are in place. The >problem is that it generally takes at least a generation or more after a >defining >new technology finally comes on line, for social movements to build enough >coherence and momentum to demand a fair share of the vast productivity >gains that >have been made possible. In the 1920s, the crisis of increased productive >capacity >and ineffective consumer purchasing power was met by the extension of consumer >credit to unprecedented levels. > >The same phenomenon is occurring today. The productivity gains brought on >by the >information and telecommunication revolutions are finally being felt and, >in the >process, virtually every major industry is facing global underutilisation of >capacity and insufficient consumer demand. Once again, in the US, consumer >credit >has become the palliative, a way to keep the economic engines throttled up, at >least for a time. > >Consumer credit is growing by a staggering 9% annual rate and personal >bankruptcies >are increasing. In 1994, 780,000 Americans filed for bankruptcy. By 1999, the >number of bankruptcies had soared to 1,281,000. > >If countries of the European Union were to lower their current family >savings rate >to zero, as the US has, they could probably accelerate economic growth and >reduce >unemployment to under 4%. Millions of people spending money "on credit" would >assuredly grow the economy and bring millions of European workers back to >work to >make the goods and perform the services being purchased on credit. But >following >the US lead would only result in a short-term fix and create the conditions >for an >even more profound long-term period of economic instability when the >extension of >credit reached its limits, pushing consumers into default and the economy >into a >downward spiral, as occurred in the late 1920s and early 1930s. > >The issue at hand is: how long can Americans continue to spend more than they >make, >moving deeper and deeper into commercial debt? In the current situation, any >number >of external events could tip the scale, with potentially calamitous >consequences. >If the energy crisis were to deepen, raising fuel and energy costs, or the >stock >market were to experience a sudden and sustained down-turn, or major lending >institutions were to pull back on their loans, the effect on all of our lives >could >be sobering indeed. > >The new economy won't be a reality until we have found a way to distribute the >productivity gains of the e-commerce revolution broadly, to ensure enough >consumer >purchasing power to match the increases in productive capacity. In the >past, that >has always meant increases in wages and benefits and a reduction in work >hours. >If, >instead, wages and benefits for middle and working-class Americans are >allowed to >remain relatively stagnant, as they have been for nearly a decade, and instead >artificially prop up purchasing power by pushing millions of Ameri cans into >record >debt, we may squander the historic opportunity we now have to create a >truly new >economy that works for everyone. > >It is unlikely that either of the presidential candidates will focus on the >troubling spectre of negative savings. Yet, whoever takes over the White >House, >it's a sure bet that sooner or later, the issue of ever-expanding consumer >debt >will force all of us to take notice. We may look back on the current >"prosperity" >with the same cynical regard as earlier generations who lived through the >short-lived boom years of the Roaring 20s. > >Jeremy Rifkin is the author of The Age of Access: How the Shift From >Ownership to >Access is Transforming Capitalism > >� Guardian Newspapers Limited 2000 > > >FAIR USE NOTICE: This site contains copyrighted material the use of which >has not >always been specifically authorized by the copyright owner. We are making such >material available in our efforts to advance understanding of environmental, >political, human rights, economic, democracy, scientific, and social justice >issues, etc. We believe this constitutes a 'fair use' of any such copyrighted >material as provided for in section 107 of the US Copyright Law. In accordance >with >Title 17 U.S.C. Section 107, the material on this site is distributed without >profit to those who have expressed a prior interest in receiving the included >information for research and educational purposes. For more information go to: >http://www.law.cornell.edu/uscode/17/107.shtml > > >- -- >For MAI-not (un)subscription information, posting guidelines and >links to other MAI sites please see http://mai.flora.org/ > > ............................................. > Bob Olsen, Toronto [EMAIL PROTECTED] > > You are free to say whatever you like, until > the people start listening to you. Then you > become threat to the state. > ............................................. >
