Overconfident consumers seeking instant gratification share the blame for the economic mess, but...

Overconfident consumers seeking instant gratification share the blame for the economic mess, but a growing sense of "our fragility and our weaknesses" - call it gloom if you want - can help us develop the realistic expectations needed to save the economy, Rick Newman writes. "It might make us grumpy, but after that it will make us better off."
Comments (29)
  • Ohrama
    , contributor
    Comments (568) | Send Message
    Well, it is pay back time for our past sins. Either we do that with contrition and magnanimity to lay the foundation for a better future for this country and our children or expect others to sacrifice only to find that everyone is looking for that other. It is our choice (or is it that other person's choice?)!
    30 Jun 2010, 06:34 PM Reply Like
  • mike8599
    , contributor
    Comments (588) | Send Message
    Bull... people can spend & invest money when they are secure in their futures, businesses can as well - they don't need anyone to tell them to stop. I'm sure a few people "sinned" but balance needs to be restored, and current policies need to promote and encourage that stability and stop the spending and control. We are best & brightest nation in the world - we just have reckless / uncertain / inexperienced leaders.


    People stop spending recklessly when policies don't encourage it (ie easy, zero down mortgages). Government will stop spending when ????
    30 Jun 2010, 07:49 PM Reply Like
  • Michael Clark
    , contributor
    Comments (11590) | Send Message
    I tend to agree with you, Ohrama, seeing it through a religious lens. 'Sin' is worshiping the golden calf, turning your back on common sense and 'balance', choosing greed, the worship of the almighty dollar. Depression follows 'sin' -- even though the 'sin' of expansion (expansion of ego, and expansion of the economy) seems to be unavoidable, built in to the system. As the 'sin' seems to be built in to the system, so the punishment also seems to be built in. Winter follows Summer.


    Rick Newman writes: 'It might make us a little grumpy..." Going to hell is going to make us more than a little grumpy, it's going to make us hungry, poor, and perhaps war-torn. Dislocated. Emptied out. Rick thinks there will just be a little belt-tightening; I think it's going to be more painful than that.
    30 Jun 2010, 10:54 PM Reply Like
  • Tack
    , contributor
    Comments (16281) | Send Message
    This must have been written by someone not an adult in the Carter years.


    Back then, Jimmy Carter told us that we had to accept reduced expectations and that our failure to do this was causing a "malaise" in America. Now, we have an administration seemingly set on the same course.


    Nobody ever accomplished anything productive by looking at themselves as "weak and fragile," and if this country adopts that attitude, now, then we're finished.


    What we all need to do is precisely the opposite. Be confident, expect to succeed, work harder and push forward.


    Only defeatists and losers accept "weakness" and limitations.


    Wake up, America.
    30 Jun 2010, 06:34 PM Reply Like
  • Ohrama
    , contributor
    Comments (568) | Send Message
    Well, I admire Carter (as an engineer who understood the limitations of the physical world that we live in, and not as a democrat) and perhaps we would not be in the hole that we are in if we had followed his advice (on reduced expectations, dependence on foreign oil etc.). We need to understand not only our strength but also the weaknesses. It is like not only you need to know where you want to go, but also where you are right now to go to that place. And in terms of life experience (and not by age), I belong to the depression era!
    30 Jun 2010, 06:51 PM Reply Like
  • cash
    , contributor
    Comments (689) | Send Message
    What is so wrong with living with-in your means, buying only what you 'need', saving and conserving? If that is going to 'finish' America, then nobody can save us. The exact opposite. It can help rebuild America with a stronger foundation.
    30 Jun 2010, 06:57 PM Reply Like
  • enigmaman
    , contributor
    Comments (2868) | Send Message
    So I guess your dream nation is someplace like "Uganda" they have reduced expectations, little dependence on foreign oil or anything else to speak of" in your eyes they have it all but can you live without your Ipod, Iphone or Mac
    30 Jun 2010, 06:58 PM Reply Like
  • cincinnatijake
    , contributor
    Comments (146) | Send Message
    Well put! Personal sacrifice makes you stronger by appreciating the tears and sweat involved in earning what you desire, affording an opportunity to discern between wants and needs.


    My dad always measured the worth of items he considered purchasing not by the amount of dollars it cost, but by the amount of back-breaking hours he had to work to afford it. It really puts the value of "things" into perspective.
    30 Jun 2010, 07:32 PM Reply Like
  • Michael Clark
    , contributor
    Comments (11590) | Send Message
    I like your post and I like your name. Cash is better than debt. That's our new mantra.
    30 Jun 2010, 10:04 PM Reply Like
  • headlocal
    , contributor
    Comments (104) | Send Message
    Amen, Tack!


    However, since the sub-median taxpayers "contribute" ~ 3% of income tax revenues (FICA not included), the 50-75% income quartile is mostly the 36M or so federal, state, & local government people, and there's another 30M growing group of retirees and boomers getting there, I'd see >85% of the populace planning to vote the bill to someone else, like the top 15% who now pay ~75% of all income taxes, and more in the states.


    So, who is going to have the resources and the incentive to provide jobs for the "... defeatists and losers (who)..accept "weakness" and limitations."


    While the NVCA has generated a job for ever $40K invested over the last several decades, Obama took $1M/job to "save" GM last year.


    And it is the consumer-commercial sector that has brainwashed two generations of Americans away from realistic expectations about anything. Note how Google, Facebook, Twitter, and every new Web-2.0 success story lives 99% off advertising - these will be of no value in promoting restraint and mature behavior.


    George Washington never rallied his troops with "You deserve a break today", "Expensive, but you're worth it", or any of the other incitements to self-absorbed indulgence that are watchwords for today.


    50% of successful Silicon Valley startups have founders from the 8% of legal immigrants there. When Obama et al boost their taxes to appease the lower 85%, wonder where they'll do their next ventures...Bangalore, Singapore, ...
    can you say "बाहर नकदी और छोड़ (Bāhara nakadī aura chōṛa)"; they can!
    1 Jul 2010, 12:35 AM Reply Like
  • nobby73
    , contributor
    Comments (1176) | Send Message
    This depends how you view the events of the Carter years. Maybe Carter looked into the future and saw a country becoming less self-sufficient, more reliant on imports and foreign creditors to fund these. Maybe he saw that the corporate machine was pushing Americans to live way beyond their means in order to purchase crap they didn't need in the false hope it would make them happy. Maybe he saw consumerism as a false god. Anyway, what he suggested was such a threat to the corporate power base that they destroyed him and replaced him with Reagan, who spent America to victory and bought off the citizens with trinkets and easy credit in the same way the early settlers bought off the natives with beads, blankets and alcohol. Since then, we have had nothing but boom and bust but the average worker is poorer now in terms of money and quality of life than they were in 1976.


    What cannot be doubted is that America is broke and it was excess spending that got us there. How taxes have been split is irrelevant, the budgets have never balanced (save for a few exceptional years under Clinton which were more to do with the booming markets than Clinton's policies.)


    Now, how do we right the ship? Well, austerity won't work, we are beyond that point. The only way we can unburden the future generation (and I would argue that they will have very little benefit from the years of excess spending since we did nothing constructive with the money) is via devaluation or a strong dose of inflation. Add in a new capital gains tax to distribute the pain, reduce entitlements in real terms and have lower income taxes going forward to allocate more revenue to the private sector.


    The system needs to be reset, but only if you shift the power from the corporations and give it back to the people do you have a chance.
    1 Jul 2010, 02:42 AM Reply Like
  • untrusting investor
    , contributor
    Comments (9903) | Send Message
    Ok, fair enough opinion. But don't forget to balance it out with the fact that the top 15% also control and own the vast majority of the assets, wealth, and income too. So who do you think is going to pay the taxes then ... those that own and control the vast majority of the assets, wealth, and income ... or the 85% that have a tiny fraction of the assets, wealth, and income. You want the 85% to pay more taxes ... no problem ... just pay them more and they will.
    1 Jul 2010, 03:13 AM Reply Like
  • headlocal
    , contributor
    Comments (104) | Send Message
    Untrusting - good reply...however


    "Ok, fair enough opinion. But don't forget to balance it out with the fact that the top 15% also control and own the vast majority of the assets, wealth, and income too. ... or the 85% that have a tiny fraction of the assets, wealth, and income. You want the 85% to pay more taxes ... no problem ... just pay them more and they will."


    1) I don't want anyone to pay more taxes, I want less spending, and when the revenue sources dry up, I don't want to have my time or attention wasted on the 20M SLG (state and local government) workers who declare their precious jobs to be "essential services demanded by the public" (although not by the wallets paying for them).


    2) the top-15% is purely an "opt-in" program, that seems more popular among immigrants than self-absorbed natives.


    3) my point about the NVCA was that they are not only 25X more efficient in creating jobs with any given amount of money, but the VC are good at creating jobs with actual future prospects. NOT to mention the higher salaries and the 4X additional jobs they generate in their local economies.


    4) the quote "बाहर नकदी और छोड़ (Bāhara nakadī aura chōṛa)" is HINDI for "cash out and leave"...something the 50% immigrant founders of startups are more prone to do.


    5) I'm not sure but I think a large fraction of the net wealth in the US is actually owned by pension funds and other institutions on behalf of people at the 40-90%ile levels of income, but the awareness is so diffuse that they don't understand this point. OTOH, operating control is at the top 1% level in most cases, but the awareness-confusion seems to serve the interests of the mass-media, the worthless educational system, and the commercial interests whose aim is well summarized by Truth-Hurts' sage's comment above: "The economy will not get back to where it should be until people again are buying things they don't need, and doing it on credit."


    6) I must apologize for not making my point clear enough, NOT that the lower 85% should pay more taxes, but that in my political calculus they are receptive to the idea that someone else should. Chief Justice Oliver Wendell Holmes noted there is no obligation to refrain from arranging one's affairs to optimize his tax burden, and in a Biden-Obama "suck it up" future, there are more ways for the top 15% to arrange their affairs for tax efficiency than there are to punish them fiscally.


    Back in the Carter era, all sorts of tax-minimization scams flourished...feedlots, section 8 housing ... check back in ~3 years and see how the landscape has evolved. Of course, I could be wrong.
    1 Jul 2010, 07:18 PM Reply Like
  • untrusting investor
    , contributor
    Comments (9903) | Send Message
    OK, good response. We could discuss and debate this ad infinitum on multiple different levels, but it would end up being book length. Would not disagree with you that taxes need to be reduced in total, though not necessarily on the top wealth and income brackets.Would not disagree with you that government is massively inefficient and needs serious reorganization.


    The problem is that much of the US governmental system has degenerated in a payola machine that is "rigged" to benefit the vested interests groups that benefit the most from it. Those vested interests groups that benefit hughly are varied but include: politicans, lobbyists, corporate america, wall street, and many private interests such as lawyers, doctors, health insurance, military contractors, etc. and yes even some government workers and some union workers. But these are the vast majority of your top 15%, not all of them, just the majority. There still is a tiny number of actual entrepreneurs and risk takers in their they actually earn it, but not that many. Most of them have "earned it" (actually closer to stolen it) by gaming the system by getting preferences, or getting laws and regulations that advantage themselves, or getting favorable tax advantages, or using influence/contacts/money to get noncompetitive access or contracts, etc.


    We could go back and forth with tens of thousands of examples, but let's look at just a few as examples.
    1) Deregulation and massive risk losses - Just two examples of this have caused trillions of dollars in losses to americans, but have made the top 15% rich beyond imagination.
    - First we have the repeal of Glass-Steagall, lead by Republican Phil Graham with tens of millions in vested interest money from the energy and banking oligarchs. This lead to the massive fraud and losses at Enron (of which Phil Graham's wife was a director). Then we have 8 years of George Bush appointing hacks to the SEC, etc and those hacks refusing to regulate anything per their donors wishes.
    - Second, we have the fiasco with derivative regulation back with Brooksley Born in the late 1990's with Alan Greenspan, Larry Summers and Tim Geitner and the banking cartel pulling out all stops to defeat it. Including outright lying to Congress and paying off politicans with large contributions to defeat it.
    - Both of these resulted in hundreds of billions/trillions in profits over 10-15 years for "those top 15%". But effectively they were stolen from the other 85% who lost hundreds of billions/trillions from the gaming of the rules by the oligarchs and politicans.
    2) Executive compensation and benefits - it is pretty clear that corporate america, our so called public companies, have jerryrigged the game to become hughly in their favor over the past several decades. Would have to guess this is at least 500,000 or more of your top 15%.
    - For example compare executive compensation in America back in the 1970/80's. At that time corporate executives made something like 40x the average compensation of their employees. Today it is probably more like 200-10,000x the amounts of their average employees. Are american corporate executives relatively 5x, 10x, 1000x better than they were then. NO, but they pay themselves as if they are. Arguably they may well be worse. Effectively they have gamed the system and stolen what rightfully belongs to the real owners, the shareholders. Not to mention they have further gamed the system by making their excessive compensation hughly tax preferenced such as: capitial gains on options, very low caps on social security and other payroll taxes that everybody else pays, etc.
    - What about a comparison of US banking executive compensation with banking compensation in other country. JPM and GS are not any bigger than say 3 or 4 Chinese banks. Jamie Diamond, JPM, and Lloyd Blankfein, GS, make what $25-100 million/year plus many other perks such as golden parachutes, multi-million dollar retirement packages. Yet the leaders of big Chinese banks make about $250K/year. Of course, Diamond and Blankfein are thousands of times better executives, or so they would claim.
    - Or just check any of the executives of Canadian public companies and their compensation, then compare it to US public company executive compensation. US executives are orders of magnitude higher.
    3) Texas and Louisana judges removed - yet another clear example of how the top 15% do it is via stacking the judical process in their favor.
    - One of the recent cases of local toxic environmental pollution vs. a large multi-national company in the southern states was consistently won by local residents and long standing local judges ruling in the residents favor for years. The large multinational was determined to win the right to build a hugh plant and spent tens of millions in getting supporting politicans elected and getting supportive judges elected and long standing judges defeated. The law school that supported and litigated the case for locals for years was threatened with funding cuts and legislation to bar them from handling litigating for the local residents on the next go round.


    And these are just a few of examples out of tens of thousands we could discuss to show how many of the top 15% have gotten to be the top 15%. What is statistically undeniable is that there has been a pretty massive wealth, asset, and income transfer to the top 15% over the past two decades and a corresponding decrease in the wealth, income, and assets of the other 85%. Not to mention the massive increase in debt of the bottom 85% as their wealth, income and assets were eroded.


    Surely this is not the course that we want for average Americans, is it? Works great for the top 15%, but we can't all be in the top 15% can we.


    This is already far too long to respond to all your 6 points, but let's at least think about your point #5 about 40-90% of the wealth actually being owned by pensions, etc.


    Have no idea what the amount is, but it really doesn't matter. Because you have described only 1/2 of the equation, namely the asset side. The other 1/2 of the equation is all the hugh liabilites that they have. Effectively the pension funds, life insurance companies, endownment funds, etc are just LT savings plans. And many would point out that the unfunded liability part of many of these is greater than the asset side of them. If that is true, as many claim, their net worth is effectively negative.


    The big picture is that sure, the US could be fixed and made a lot more efficient and productive. It just is unlikely to happen with the vested interest dominated system that exists now. Taxes are just one element of that much bigger mass of structural issues.


    In any event, don't think we are really that far apart on how we see some of the issues. Great sharing some comments with you.
    2 Jul 2010, 07:47 PM Reply Like
  • Truth-hurts
    , contributor
    Comments (147) | Send Message
    I heard a "sage" a couple of months ago who said "The economy will not get back to where it should be until people again are buying things they don't need, and doing it on credit." I don't think anything else I've seen sumed it up better, one several levels.
    30 Jun 2010, 06:46 PM Reply Like
  • Duude
    , contributor
    Comments (3413) | Send Message
    I don't have many expectations for Americans to relinquish their consumer behavior over more than the short term. It will take a much more serious recession/depression over a decade to change attitudes.
    30 Jun 2010, 06:47 PM Reply Like
  • enigmaman
    , contributor
    Comments (2868) | Send Message
    The author is just getting us ready for what lies ahead, preparing us to live the austere lives Obama spoke of when he was lying his way into the Whitehouse, remember " we have to start living our lives more aligned with the rest of the world" he was not lifting us up he was and is tearing us down getting us all ready to live our lives in Mediocrity
    30 Jun 2010, 06:51 PM Reply Like
  • The Patriot
    , contributor
    Comments (358) | Send Message
    For those of us who have lived frugally all our lives, there is nothing more we can do. I am content with my "success" and my goal is just to maintain my current level. What I find so repulsive are the ones telling(mandating) me to lower my standards of living to pay for others excesses.
    30 Jun 2010, 07:16 PM Reply Like
  • Duude
    , contributor
    Comments (3413) | Send Message
    In this upside down world I imagine those that have lived within their means will be made the next boogie man. Maybe they'll be painted as selfish or unpatriotic for not supporting the economy. Sounds pretty silly, but nothing would surprise me.
    30 Jun 2010, 11:35 PM Reply Like
  • The Geoffster
    , contributor
    Comments (4291) | Send Message
    Everything is just peachy when you pay your bills and I pay mine. I take issue with having to pay your bills though.
    30 Jun 2010, 07:24 PM Reply Like
  • The Forgotten Man
    , contributor
    Comments (31) | Send Message
    The Patriots words above also speak for thousands of small business people in the USA!... You know, the ones that hire employees.
    30 Jun 2010, 07:27 PM Reply Like
  • 7footMoose
    , contributor
    Comments (2229) | Send Message
    This country is well past the point where sane people separate themselves from the idiots. We need a few sane individuals to sacrifice themselves by getting elected to Congress and then take the bully pulpit and declare that the majority of Americans are about to starve to death because the government, either the Federal or Local, cannot and will not support them in the style they have become accustomed.
    30 Jun 2010, 08:12 PM Reply Like
  • positivethoughts
    , contributor
    Comments (2064) | Send Message
    People can enact all the fiscal discipline they want, but if they are exposed to runaway government spending, their future will be mortgaged regardless.


    Think about the $13 trillion dollar debt the federal government has racked up, increasing at over $1 trillion per year. If there are 310,000,000 in America, and lets say half of them are in the workforce, the other half retired, in school, or not yet of working age etc., that means that each current earner is responsible for all their own personal expenses plus about $124,000 in federal public debt. This doesn't even include state and municipal (I think Americans call it county) debt. Then there is social security, medicare and now universal public health care obligations. Next, America's military is responsible for ensuring World safety and stability at $550 Billion per year.


    It is mind-boggling. So again, each american's person debt likely pales in comparison to the debt that your government is raking up for you. I bet when all totalled, the average american employee is on the hook for over $500,000 in government debt and obligations.


    The government will likely reneg on obligations, print money, and raise taxes - all things that will hurt the economy and GDP.
    30 Jun 2010, 08:14 PM Reply Like
  • carlmuck
    , contributor
    Comments (37) | Send Message
    Positivethoughts, you use GWBs picture as your avatar. You are aware that during his administration the government NEVER paid for it's programs? Everyone of their programs added to the debt, so we went from budget surplus of $250B to deficit of $1.4T, and loosing jobs all along the way.


    Spending cuts now will only exacerbate the problems. If you don't believe it, there are actual test cases out there to learn from. Look at Ireland over the last 2 years. They took the path of "austerity" and the government spending cuts simply deepened their recession.


    Budgeting as we had in the Clinton years is a great objective, but instituting that while in recession (or at least not fully out of it) is folly. And once we get there we can't put in an administration that just screws it up again.


    You should note that of the $13T total debt, $9T was accumulated by Republican administrations.
    1 Jul 2010, 04:22 AM Reply Like
  • Jason Tillberg
    , contributor
    Comments (1327) | Send Message
    There is actual data on every data point you just mentioned.


    Your logic is ok and your intent is good, but it's desparately missing objectivity without the real data to support your argument.


    It's called "Fed Flow of Funds report." Google it, but good luck as it's a 105 page monster and no instruction manual.
    30 Jun 2010, 09:19 PM Reply Like
  • jeewheeze
    , contributor
    Comments (53) | Send Message
    So few people seem to recognize the massive wealth transfer from the middle-class to the elite as the cause of global economic distress. Odd. I suppose it's because those same elites own the media and control the message, define the framing, and filter the dialog.


    Blaming "the consumer" and the Government is ridiculous, a non-conscious parroting of the memes the fascists megaphone, as a distraction from their rape.
    30 Jun 2010, 11:51 PM Reply Like
  • Michael Clark
    , contributor
    Comments (11590) | Send Message
    Yes, 'overconfident consumers' destroyed the global economy. Who was driving the Titanic when these consumers were running wild in the casino, and in the first deck?
    1 Jul 2010, 12:28 AM Reply Like
  • gretel
    , contributor
    Comments (304) | Send Message
    MIKE 8599, you have a dream from yesterday ! Best and brightest Nation in the World ? We are like Rome we are going DOWN because we are fat , we finance even our socks , we have 85% of the Worlds Lawyers , we spent more time with suing just about everybody then working, parents run the schools and come with there Lawyers because Johny has too much homework so he can't watch more than 3 hours TV and Monicas teacher raised his voice , 35 % of young people have no job and are not looking for one but have a big MOUTH, religious fanatics built more and more churches , too many Senators and Congressmen are employed by GS and Co, we have no health-care to speak of , Social Security is soon non existing ,
    the cost of education is out of this world where it is for free in many Western Country's including health care , so in general we are now a 3th world Country where 3% have most of everything and the rest receives a lot of BS ! So Mike go to Singapore Scandinavia , Austria and many other Country's then you may know what a BALANCED LIFE is , they have little of natural resources but they know the Population of there Country and the World where in the USA maybe a few know where the USA is on the World Map . Schweden was the last European Country to legalize the oldest Profession in the World "Prostitution", RAPE went down 67% and the Girls pay Taxes too , we have a few corners in the Country where we can pay for "short Love" but the FANATICS who do there " Thing" in hiding keep us from having a great time ! Yes I know, my English is great .You all have a nice day !
    1 Jul 2010, 01:02 AM Reply Like
  • mike8599
    , contributor
    Comments (588) | Send Message
    And we have tolerant and diverse population with many points of view, and the freedom in which to express it. And yes, I've been, and lived, and raised a family abroad - and I like it here best, which is why I came back here. The natural innovation and creativity deeply rooted in the U.S. drives the world.


    Life is short, live where you are happy.


    And of course we are also the home of Goldman Sachs, which holds a special place in your heart. :)
    2 Jul 2010, 10:00 AM Reply Like
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