W got it half right in his photo op with the finance chiefs of the G7 on 10/11 when he said: "That which affects Wall Street affects Main Street as well."
The other side of that coin is: "That which affects Main Street affects Wall Street as well." The Capitalist Catechism recognizes this in theory ("The customer comes first") but Capitalism's most ardent acolytes appear to have lost sight of this verity, ensconced in their gated communities or C-suites elevated above the street-level din.
The truth of these two statements can be found in the events leading up to the current crash in the price of oil. Let's review:
In the three years leading up to 2008, the price of oil escalated significantly. While the simplistic notion attributed this all to 'greedy oil barons', there were in fact a half a dozen factors which, in various combinations, gave credence to the escalation as an economic reality grounded in structural realities of the industry and the world economy at large. (See "The True Price of Energy" , 2007/12/01).
In 2008 the price of oil began to escalate well beyond the trajectory of reasonable intrinsic factors. Even to a lay person such as myself, it appeared driven by some externality apart from normal factors. At the same time, the Sub-prime whirlwind was emerging from the swamps of Florida and the deserts of the West and everywhere in between in varying degrees, and impacting Wall Street. I surmise that at this time, the hedge funds, which were seeing the bets on mortgage backed securities crumble with each passing day chose to escalate their offsetting bet in energy, thinking that the rational argument for higher prices was sufficient cover to take them to irrational heights, as had worked so beautifully for so long in real estate.
But, as with any form of economic kiting, no one is good enough to play the game forever. Wall Street's oil gambit came home to Main Street. The geometric escalation in oil prices in very short term led to commensurate 'demand destruction' on Main Street. As in any significant economic trend, the demand destruction from escalating oil prices had multiplier effects beyond the oil market itself, affecting tourism, retail, .... jobs. Whereas consumers in January worried how to balance fuel costs in their household budgets, by July the decelerating economy was blowing out more and more household budgets all together with unemployment. At this point the house of cards begins to collapse. Payback time. Main Street repays Wall Street in kind, and we all reap the whirlwind.
While this may not result in the second Great Depression as we knew it, it most certainly will result in The End of The World As We Know It now. This will not be decided on K Street or Wall Street; it will be decided on Main Street, where there is nowhere to run, nowhere to hide.
To be a Consumer. Over the years the term 'consumer' has become increasingly offensive to me. It is in Capitalist theology the equivalent of 'proletariat' in Communist theology. In both cases the terms dehumanize people into the lowest class of economic chattel. And there they remain.
The consumer economy is two thirds of the US economy. What we do in the economic dimension of our multi-dimensional lives is critical to the overall economy. Yet to a disturbing degree, the economic dimension of our lives has crowded out or compromised all other dimensions, leaving us unquestionably poorer in economic and most other terms. Still the people at the top of the economic food chain who have engineered this culture have the audacity to look out on the current wreckage, and blame it on the chattel.
Why did Detroit persist in building gas guzzlers when the end was obvious? Because WE wanted them; not because Detroit wanted the higher profit margins associated with this energy excess.
Why was the real estate bubble built on McMansions and Luxury Condos when affordable housing of all kinds was scarce to non-existent in many places? Because WE had a compulsion to spend beyond our means. WE refused to buy what was not being offered in the first place.
Why does Detroit not build more fuel efficient vehicles? Because we will only want to drive more, extending our commutes until they consume the rest of our waking hours. (Really... Supposedly educated people in industry and the current illusion of national government dare to argue that their opposition to higher fuel standards is in effect saving us from our squanderous inclinations.)
Why are health care costs moving beyond middle class reach? Could it be what we eat; the air we breathe; our culture of irresponsibility fashioned in the virtual conjunction of Hollywood and Madison Avenue, funded by Wall Street?
The absurdity of the consumer oriented existence was made starkly obvious in the dust of 9/11 when W urged the populace to 'go shopping' as our courageous response to terrorists, demonstrating in measurable terms that our resolve has not changed.
We can no longer afford to be Consumers. Ironically, that choice is no longer ours. We have tapped out our home equity; tapped out our credit lines; and the market has tap danced on our pensions. So where do we go?
Economics 101 teaches us that a dollar invested improves our productive capacity and thus our future prospects; a dollar consumed...is consumed. If we were to adopt this lesson and consume less, invest more, it would transform much of our economy and send much of what we now know into the economic dust bin. If we were to truly follow preventive health principles, half of the detritus that occupies our store shelves, and the companies that produce it, will be recycled to an alternate future. If we truly educated our young people to think critically and logically, and to adopt prudent values and long term thinking that is scarce in most corporate board rooms, much of our consumer economy would not find a receptive audience.
Gradually, necessity will transform our economy because we have squandered the privilege of waste. But to what? Will circumstance diminish the economy because the few with all the marbles will horde them? Ultimately, the few at the top of the pyramid must begin to realize that the peak rests on a much broader foundation; and that when the foundation crumbles, the peak cannot possibly survive.
Adapt, or die.
Onward.
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