There’s more to buying that high-tech gizmo or fancy new clothes, especially if you put it on plastic. If you’re anything like the so-called average American with combined balances on your credit cards pushing upwards of $10,000 per household, then you’re paying a lot more than the purchase price after factoring in an exorbitant interest rate on the unpaid balance. Just one credit card with a balance of $15,000 and a monthly minimum payment of $300 based on an interest rate of 13 percent would take nearly twenty years to pay off, amounting to nearly $9,000 in interest, according to the website Cardweb.com.
To save or spend?
This raging debate among economic recovery pundits mask the reality that based on our current “free trade” global economic system, what we really mean by spending is consuming. And in this global free trade system, ecological costs are “externalized” if we use the correct economist’s jargon. As a result, we pollute, destroy and exploit where ever we can. If you can’t do this in the United States very easy thanks to national laws and regulations, well then, export your manufacturing and service operations to places that don’t have many, or any, regulations. Then import these products back into the U.S. to sell at a big box store, plopped down where there used to be viable farmland. For example, these BIG companies move operations to places where poor people can sort through toxic junk computers for scrap or to places where throwing something away can’t possibly ruin our own clean air or water in our communities.
According to Emily Kaiser’s analysis for Reuters: “U.S. President Barack Obama needs to convince Americans to spend now and save later in order to get the U.S. economy back on solid footing.” It doesn’t have to be this way.
How are we going to grow spending with millions of American’s without jobs, without health insurance, with nominal (if any) “emergency savings,” dwindling 401(k)s, perhaps, even, without a home? We will not, or cannot, unless every one ends up working for the government, perhaps helping out with the U.S. census. Putting it on credit cards is not a sustainable way to go either.
Millions of Americans now recognize this path we’re on. They’re cutting back, if not trying to pay off altogether, their credit cards. According to Lucia Mutikani for Reuters (April 7, 2009), “revolving credit, made up of credit and charge cards, plunged at a 9.7 percent rate, or $7.79 billion in February [2009], the largest dollar drop since the Fed started tracking the series in 1968.” So Americans are finally saving some and cutting back. Many Americans, like my family, are growing at least some of our food, exchanging items for free within our communities, or in various ways choosing to simplify and live within our means. Now I have more time to hang out with my son! Credit card users beware, however. If you stop using the cards long enough, the BIG banks that issue them will simply close your account.
Here’s the sustainability story not told often enough. Despite what the BIG bankers, economists and BIG government might claim, our economy operates under the laws of nature, not just the laws of supply and demand. That’s right. Nature runs its course in cycles (spring, summer, fall, winter) and so, too, does our economy. Our economy is based, in part, on natural resources on a finite planet, so our economy cannot grow infinitely. Ecopreneurial enterprises, whether for profit or non-profit, recognize this, guided by the “triple bottom line.” So do conserving customers who prioritize their values when making purchases, values like vibrant local communities, healthy foods grown organically and where fair “living wages” are paid to those to offer the products or services.
Mindfulness, not abstinence
I’m first to admit, the use of a credit card is both convenient and, since I pay the balance off every month, a nice way to get a short term “loan.” Using a credit card also allows me to track just about every expense (I don’t even know how to use a cash machine). Talk about budgetary control and understanding. But the most important aspect of my family’s spending is its priority of being a tool for mindfully making the changes we want to see happen in the world. For items we don’t grow ourselves, we support our regional food cooperative (Willy Street) which, in turns, supports local farmers and fair trade relationships, for example. For other purchases, we see our role and responsibility to invest in the restoration economy, patronizing those companies that care as much about the planet and its citizens as we do.
There are many who feel living at or below our means will bring about a Depression. My experience, however, as reflected in my books, ECOpreneuring and Rural Renaissance, is that the change we’re seeking is exactly the kind of change that such change in our approach to wealth, money and consumption might bring. A caveat, however, is that this kind of a future based on community, collaboration, self-reliance, cooperation, and personal responsibility are the types of values BIG corporations cannot sell, or profit from.
To be fair to President Obama, he does understand that the change we seek starts with us. Here’s what he said recently at the G20 Summit: “In order for growth to be sustainable, it can’t be based on speculation, it can’t be based on overheated financial markets or overheated housing markets, or U.S. consumers maxing out on their credit cards, or us sustaining nonstop deficit spending as far as the eye can see.”
I would agree with everything he said except for the part in calling us “consumers.”
Photography: John D. Ivanko/ecopreneuring.biz
Pete Murphy
Our enormous trade deficit is rightly of growing concern to Americans. Since leading the global drive toward trade liberalization by signing the Global Agreement on Tariffs and Trade in 1947, America has been transformed from the wealthiest nation on earth – its preeminent industrial power – into a skid row bum, literally begging the rest of the world for cash to keep us afloat. It’s a disgusting spectacle. Our cumulative trade deficit since 1976, financed by a sell-off of American assets, exceeds $9.2 trillion. What will happen when those assets are depleted? Today’s recession is the answer.
Why? The American work force is the most productive on earth. Our product quality, though it may have fallen short at one time, is now on a par with the Japanese. Our workers have labored tirelessly to improve our competitiveness. Yet our deficit continues to grow. Our median wages and net worth have declined for decades. Our debt has soared.
Clearly, there is something amiss with “free trade.” The concept of free trade is rooted in Ricardo’s principle of comparative advantage. In 1817 Ricardo hypothesized that every nation benefits when it trades what it makes best for products made best by other nations. On the surface, it seems to make sense. But is it possible that this theory is flawed in some way? Is there something that Ricardo didn’t consider?
At this point, I should introduce myself. I am author of a book titled “Five Short Blasts: A New Economic Theory Exposes The Fatal Flaw in Globalization and Its Consequences for America.” My theory is that, as population density rises beyond some optimum level, per capita consumption begins to decline. This occurs because, as people are forced to crowd together and conserve space, it becomes ever more impractical to own many products. Falling per capita consumption, in the face of rising productivity (per capita output, which always rises), inevitably yields rising unemployment and poverty.
This theory has huge ramifications for U.S. policy toward population management (especially immigration policy) and trade. The implications for population policy may be obvious, but why trade? It’s because these effects of an excessive population density – rising unemployment and poverty – are actually imported when we attempt to engage in free trade in manufactured goods with a nation that is much more densely populated. Our economies combine. The work of manufacturing is spread evenly across the combined labor force. But, while the more densely populated nation gets free access to a healthy market, all we get in return is access to a market emaciated by over-crowding and low per capita consumption. The result is an automatic, irreversible trade deficit and loss of jobs, tantamount to economic suicide.
One need look no further than the U.S.’s trade data for proof of this effect. Using 2006 data, an in-depth analysis reveals that, of our top twenty per capita trade deficits in manufactured goods (the trade deficit divided by the population of the country in question), eighteen are with nations much more densely populated than our own. Even more revealing, if the nations of the world are divided equally around the median population density, the U.S. had a trade surplus in manufactured goods of $17 billion with the half of nations below the median population density. With the half above the median, we had a $480 billion deficit!
Our trade deficit with China is getting all of the attention these days. But, when expressed in per capita terms, our deficit with China in manufactured goods is rather unremarkable – nineteenth on the list. Our per capita deficit with other nations such as Japan, Germany, Mexico, Korea and others (all much more densely populated than the U.S.) is worse. My point is not that our deficit with China isn’t a problem, but rather that it’s exactly what we should have expected when we suddenly applied a trade policy that was a proven failure around the world to a country with one fifth of the world’s population.
Ricardo’s principle of comparative advantage is overly simplistic and flawed because it does not take into consideration this population density effect and what happens when two nations grossly disparate in population density attempt to trade freely in manufactured goods. While free trade in natural resources and free trade in manufactured goods between nations of roughly equal population density is indeed beneficial, just as Ricardo predicts, it’s a sure-fire loser when attempting to trade freely in manufactured goods with a nation with an excessive population density.
If you‘re interested in learning more about this important new economic theory, then I invite you to visit either of my web sites at OpenWindowPublishingCo.com or PeteMurphy.wordpress.com where you can read the preface, join in the blog discussion and, of course, buy the book if you like. (It’s also available at Amazon.com.)
Please forgive me for the somewhat spammish nature of the previous paragraph, but I don’t know how else to inject this new theory into the debate about trade without drawing attention to the book that explains the theory.
Pete Murphy
Author, “Five Short Blasts”
nadine sellers
the word is redundancy…anything i may interject after the previous comment holds little weight…unless one person at a time still floats.
i have committed plasticide, long ago, by way of bras, irons and other implements of slavery, i shook the shackles.
personal empowerment is needed for the economy to survive. it is not the government which buys the toy, the object of desire, it is the one who earns the one dollar, the rupee for that item.
all institutions or groups could take a desensitizing course in education, and prompt their followers to keep the eye on the sinking bottom line of purchase power. this is a greening of the western ideology. the essentials become dear.