Tag Archives: Economic

Consumers Are Us

Government, industry, media, all consistently refer to us, not as people, but as “consumers”. Our economy is driven by consumer spending. News media report on it daily; if it is up, investors buy, if it is down, they sell. We spend not to satisfy needs. We consider shopping to be entertainment. We purchase things we neither need nor particularly want, as we respond to manipulative marketing by those who gain from our wanton spending. We are defined by our consumption.

We were not always like this. People once worked together to provide the goods and services needed to sustain their communities. They were family, friends, and neighbors, and they also were savers. They had savings accounts in their local banks, which loaned the funds as mortgages so others could buy houses in the community. I bought my home many years ago with a loan from the local bank on Main Street where it had been for 100 years. It was a 30 year mortgage with a 6% interest rate. I opened a savings account there, which paid me 5% interest even as those savings helped my neighbors buy their homes. All that changed with bank consolidation, resulting in the demise of many local banks. TD Bank, headquartered in another country, now occupies the building on Main Street.

With large financial institutions came intensive marketing and proliferation of credit cards. They enticed people with steady incomes and savings accounts to get credit cards and “buy now, pay later”. With credit card use, spending increased and debt became common. They later introduced debit cards to allow purchases through direct bank account withdrawals, further encouraging spending. Debit card expenditures result in exorbitant fees if they exceed the account balance; credit card expenditures incur high interest rates on charges carried over from month-to-month. The financial institutions reap huge profits.

Corporations use new technology to devise more effective ways to manipulate consumption. Mobile devices, the internet, and social networks provide access to personal information, which they use for “personalized” marketing. Mobile devices can function as debit or credit cards, making it easier to buy on impulse. We define ourselves by our purchases; we purchase and wear products that flaunt the logos of the stores we frequent. We spend and incur debt without asking ourselves the simple question, “Do I really want or need this?”

We eagerly consume the products that corporations foist on us. As we spend, the corporations profit; as we incur debt, financial institutions profit. Our contributions to our communities and to society diminish. One definition of consume is to waste, to destroy; our consumption fosters waste and exploitation of natural resources, creates pollution, destroys the environment, and corrupts society. We have earned the title “consumers.”

Education and Income Disparity

In recent decades as income disparity increased, upward mobility decreased. In the same period, quality of education deteriorated for those in lower income communities. This deterioration results when family and community income influence the quality of education. The income disparity leads to education disparity, limiting employment opportunities for the disadvantaged and increasing social problems.

The affluent can choose their communities and have the option of enrolling their children in private schools if public schools do not meet their expectations. The poor do not have those choices. Some communities offer charter schools, which allow a few students an alternative to public school. Private and charter schools have several advantages over public schools; they can select their students and control their budget, curriculum, and teaching staff. As a result, they have more freedom in accommodating student needs. Public schools must accept all students in their communities, function within fixed schedules and curricula, and live within budgets that compete with other community priorities.

Communities receive education funding from local, state, and federal governments. Local funding comes from property and/or sales taxes. Affluent communities are able to provide better resources than low-income communities. The result is that low-income communities, which have the greatest needs, may have schools with the fewest resources, the least qualified teachers, and inadequate school facilities. Federal and state funding, distributed by formula and programs to address specific factors affecting quality of education, varies from state to state. These funds do not directly address the resource advantage of affluent communities, which can afford higher salaries to lure the best qualified and most experienced teachers and provide more resources and better facilities.

Low-income communities often have more students living in environments where social problems prevail. In Income Inequality & Social Dysfunction, Pickett and Wilkinson conclude that many social problems, including mental illness, violence, teenage births, obesity, drug abuse, and poor educational performance, are more common in societies with income and social stratification, and their prevalence increases with degree of inequality. If our society continues to tolerate the conditions that increase income disparity, these problems will perpetuate.

Social problems are a drain on the economy. Better employment opportunities can reduce their prevalence. Education disparity limits the ability of the disadvantaged to be aware of, and to qualify and compete for, better employment opportunities. Might government investment to ensure education equality be an effective way to reduce social problems and income disparity?

Chained!

In the ongoing government budget debacle the Obama Administration is offering the Chained-CPI as an option for reducing government expenditures. What is the “Chained-Consumer Price Index (C-CPI)” and why should we be concerned?

The Bureau of Labor Statistics calculates the CPI to estimate the effects of inflation on the cost of living. They define a market basket of goods and services and periodically calculate the change in its cost over time relative to a base time. The CPI determines the annual cost of living adjustment (COLA) to be applied to Social Security benefits, veteran benefits, pensions, and other benefit programs. The CPI also is a factor in determining worker compensation and federal tax rates.

The Chained-CPI modifies the cost of this market basket by assuming that price increases cause consumers to seek cheaper options and therefore, spend less than they would otherwise; e.g., instead of buying a big name brand product, the consumer will purchase a cheaper store brand. Using the Chained-CPI rather than the CPI results in a lower COLA. This is assumed to be a more accurate representation of consumer spending. What is not acknowledged is that the cheaper market basket represents a forced reduction in standard of living.

Government policies, as well as increasing market demands, promote inflation, so the COLA is typically an increase. If defined by the Chained-CPI, the new COLA will be less than one determined by the CPI, reducing increases in wage and benefit payments. It also will slow increases in federal tax brackets resulting in higher taxes for those with increasing incomes.

Each year as prices increase, and consumers opt for a cheaper market basket, the Chained-CPI would reduce the COLA accordingly, and lock consumers into further reduction of purchasing power and living standard. If the Chained-CPI becomes the new standard, some consumers eventually will reach a point where there is no cheaper option. The only option is to do without. This process will drive those on marginal subsistence into further poverty, hunger, failing health, disability, unemployment, premature death.

When asking about my benefits at the local Social Security office, I saw an elderly woman who was retiring from her job as a cleaning woman. She was told that she would receive $512.00/month in benefits. As she lived alone and had no other sources of income, she was entitled to food stamps and a waiver of the Medicare deduction. Even with these additional benefits her income would be well below the federal poverty level of $931/month for a single person. About 15% of the population, approximately 46 million people, are surviving on incomes at or below poverty level. What flexibility do these people have for reducing costs?

If the Chained-CPI becomes the standard for determining COLAs, most of us will be “chained” to a continuous reduction in standard of living, with the poorest, most vulnerable, suffering the most. For them there are no cheaper options.