Great response, thanks. I know my analogy is somewhat simplistic, but without a background in something you always have to try and relate it to something you can understand.
Neat post :)
In the spirit of debate, here's my perspective on things. Also analogies are dangerous, since each layer adds another bit of confusion into the mix.
Economies traditionally didn't fail because of lack of consumerism - modern economies are structured differently. Back in the 1900s (and earlier) the bulk of the wealth created in a nation came from work output through a factory, typically by making something. Now we got really good at this and found ways to make more with less people, as can be seen by the increased productivity per person through the use of machines. Since then, things have changed slightly. Most people do not actually make a physical product, instead they sell a service. The economy in the developed world has shifted to become service based, which doesn't make things (although there are no shortage of things), and most workers today fall into that category. Think of any "knowledge worker" (aka someone who has to use their head for a living) such as a programmer at Google. They don't make a thing, they sell a service.
Now why is this important? Because services, at least how they work now, need to be consumed in order to make money (it also gives jobs since machines can do a lot of the work). As a consequence to this shift in the underlying production in the developed worlds, consumerism (or what economists call consumption) has increased significantly on the amount of money it generates, or flows for the economy. So this is a very important "stream", at least in so far as how all western economies are structured.
I know the balance of material items vs services is shifting over time, but the thing I wonder is that services don't appear create lasting wealth/efficiency themselves, unless they are employed in creating a "material" item. The programmer creates applications that make work more efficient, but a masseuse's labour efforts (although certainly worthy!) effectively dissolve and are gone after the service is complete.
So my argument against consumerism is that companies, in order to chase maximum profit margins,
have to build things that are designed to fail over time. In essence, modern capitalism is all about charging the highest possible price for the worst product that the market will stand. This seems to be far below the theoretical ideal of creating products that provide the highest possible value over time. Take a refrigerator, for example. Old ones used to last 25-30 years or more. I had to buy one recently, and the salesperson said the expected life of a modern fridge is 10 years. I know they've gotten more energy efficient, but the technology hasn't changed dramatically and this seems like a step backwards. Cars, OTOH, seem to have improved in nearly every way (except in repairability).
It seems as though Mustachianism would move society closer to the ideal of maximizing value (and therefore standard of living, measured holistically), to me, as people spend their dollars more carefully and carefully examine the value of every purchase. That seems to be the most powerful idea that MMM has put forward in his thoughts.
To go to your water analogy what happened in 2008 was that there was a ton of toxic debt out there that should have never existed (and gave a false sense of prosperity before it all blew up). And don't only blame the banks on this one, everyone had a hand in it. The insurance companies were dumb for taking on too much similar risk; the banks were dumb for not realizing that their balance sheet was entirely dependent on an undiversified investment (mortgages); the rating agencies were dumb for not wanting to truly rate the credit default swaps with the appropriate level of risk that they deserved; the brokers were dumb for continually pushing for more loans in an effort to get more commission; and lastly the end consumers (everyone else) were dumb for signing up for a loan that they couldn't afford or over-buying the size of house they needed. Everyone's greed got in the way. I still remember a news story where this hairdresser in Florida was living in a tent. He was devastated that he lost his shirt because he had to declare bankruptcy after the THREE houses he owned became underwater - he should have only had 1... maybe not even.
That's why it seems to be ridiculous to me to not have government regulate industry. Companies, left to their own devices, invariably go off the rails, and clearly act without neither conscience, nor interests of society at large. They simply respond to incentives, and in the way way you describe it, all of the incentives must have been aligned to encourage the situation that happened.
In Canada, I seem to recall all of the banks complaining about how they weren't able to keep up with the results of the US banking sector, but the government resisted letting them merge and engage in the same behaviour. Assuming I've interpreted that correctly, it seems that's been a hugely important decision that hasn't resulted in the proper people receiving credit for it.
So back to the economy, specifically in the US in 2008, the Federal Reserve knew that money had to keep flowing, otherwise there would be some nasty implications, so they started Quantitative Easing (QE). Each time they have done this they have in effect given the banks a HUGE amount of capital to loan out to people, in a hope that it will stimulate spending (think of it as someone basically increasing the water in a lake with a massive tap). Don't blame corruption, blame fear for what happened next. Instead of loaning out the money like before the banks held onto it and effectively dammed it up. They did this since they realized that they screwed up and had loaned out money where people likely had little to no hope of fully repaying it. So the amount of money flowing in the system just dried up, at least to most people (if you were like me with a good credit history and a good job, it was kinda sweet). It is important to remember that while the banks were stupid in taking on all that.
Yes, that "flowing" is what sparked the analogy I used. Ultimately, that seemed to be the essence of the problem, but I'm probably over-simplifying. It's hard to know where that line is!
"Make things as simple as possible, but not simpler." - Albert Einstein
As an aside, I never understood why it was OK with citizens overall the way this whole debt crisis was handled. I'd love someone to explain how my reasoning is incorrect so I could feel better about the whole thing:
- Money was distributed to the banks, not people. Wouldn't it have made more sense to offer more generous unemployment benefits, or something similar? Money would have kept flowing, people would have kept their homes, etc.
- The money was put in the hands of the people who created the problem in the first place. This clip seems to illustrate it all to me: http://www.liveleak.com/view?i=85c_1363743687
- None of those people ever received any type of punishment (like being excused from their jobs for incompetence). The government simply said, "OK, here's a pile of more (citizens) money for you!!!"
- Wasn't this the largest transfer of wealth from public to private hands in history?
Also, I think it was compounded by the fact that companies wouldn't invest in new initiatives, so they also kept stockpiling money. So there was staggering amounts of money in the system, but it wasn't "flowing", no?
The rest of the world was dragged into this mess since they saw all these "safe" (AAA rated) investments with stupidly high returns. They were greedy and bought them. Greece is an interesting case since they thought they were being clever. They used all these "sophisticated" financial tools to help them reduce their debt. They ultimately took a bet that things were going to keep going up (and it would help reduce their debt), and they lost. Toss in a corrupt system were most people in the country do not pay their taxes and you have problems. Europe itself is in this mess since it is all using one currency. Governments spend as if they are all independent, but they are locked together at the currency. Iceland was able to fully recover since they controlled both aspects (spending and currency), but Europe isn't quite there yet.
I do want to point I would say that your belief that real pay is going down is misplaced... And I say this carefully. In North America, real pay has remained relatively stagnant over the past 30 years or so, however take into account not the $ amount, but what you could do with it. A computer in 1984 cost $2000 in those dollars. Today I can get a decent machine for $400 (and our dollars now are worth less than the 1980s dollars). What people can buy with their dollar has improved, so you can look it as if rather than their wages going up, prices dropped... which is fairly neutral (huge generality I know, but except for housing and some energy, everything has proportionately gone down). Now, look at wages not in the developed world, but globally. Those cheap prices have been achieved since the developed world was used to make those cheaper products. What has this done? Well China and India now have a middle class. A middle class that is so big it is larger than the US population itself. That is freaking amazing! Think on how much wealthier those people are now compared to how they were. So the wealth is spreading, but it is just going to other parts of the world and we are all becoming more equal.
You have a couple of interesting points in this paragraph. The first is that you're arguing that our effective standard of living has increased due to the increase in efficiency, even if the real wages don't show the same increase. I'm not sure that's true, although it would require more research time than I have to check. So, efficiency increases happened, allowing some products to be purchased more efficiently. Meanwhile, a few other things were happening:
- Governments have been piling on debt, effectively working against the standard of living of future generations.
- Core staples (the bedrock of a standard of living) like food, housing, energy, etc have been getting more expensive faster than inflation.
- Worker benefits (non-wages) have been whittled away; pensions, retirement benefits & dates, etc. So while the direct salaries may have kept up with inflation, overall things have gone down for the average worker.
- Wealth balance in society has gotten totally out of whack, with the obscenely wealthy gaining ever more control and influence over the rest of society.
- The environment has been significantly degraded, and this continues. Another reduction in the standard of living for subsequent generations.
Secondly, free trade increasing wealth around the world: it's a complicated one, but I haven't seen anyone argue in such a way as to convince me it's good from the POV of the average citizen. In the developed world, by and large we have standards for environmental protection, worker safety, benefits, minimum wages, etc. In the developing world, those are by and large much less. (I don't mean to say that the fact that millions of people has been brought out of abject poverty is not a tremendously good thing, but I think a much better job of that could be done by careful "fair trading".)
The real point of free trade has been to undermine the power and influence of democratically elected governments, and allow the wealthiest to gather and hoard more money. So the wealthiest get fantastically wealthier; the poor in developing countries get an important boost in wealth (but at other cost - the air quality in China sounds horrific); and the middle class in the developed world get more debt, more environmental destruction, less influence in society, longer work weeks and careers, etc.
This matters as longer work weeks and careers, are not a step towards Mustachianism! We should be focusing on directly
Suffice it to say, analogies are dangerous. Trying to keep tie wealth distribution to water levels and make us all living parts around a lake just obscures what is really going on. Had the US mortgages never been packaged in such analogy-layered "products" such as "credit default swaps" and AAA rated bonds. We all caused this mess. If you want to see a prime example of how people can be affected by analogies, there is a great TED talk on this, see Dan Ariely's, "Our Buggy Moral Code".
http://www.ted.com/talks/dan_ariely_on_our_buggy_moral_code.html
That's a really interesting video, thanks for sharing. That detailed analysis of the effects of incentives is what I was sort of trying to get at. I'd call that corruption, but there's probably a more accurate term.
His main point at the end, that people's intuition is often wrong, I think is so important. It's the biggest thing that drives me nuts about the current Cdn government - they are systematically eliminating or reducing the amount of real data in the decision making process, and making decisions that match people's intuition (e.g. Be tough on criminals to reduce crime! ...but data shows that approach only increases crime over time.) *grr*
I guess this has gotten off topic and into other areas rather than how how full-scale societal Mustachianism would affect things, but is really interesting to me. Like you said, one can probably make arguments one way or the other about whether it would be good or bad, but I'm sure what ultimately matters (as for so, very many things) is the implementation details. Everybody seems to argue much about "right" vs "left" which seems completely beside the point to me - both sides have great points, and the incentives in each seem like they'd work in different situations, yet both have fundamental flaws that need to be carefully mitigated against. There are no simple, magic answers. What seems to matter is the details no one seems to discuss - in whose best interests are decisions and policies being crafted, and are these based on facts and evidence, or belief and intuition?
I appreciate feedback. I have opinions, but I'm always trying to refine them, and I have changed them (often dramatically) based on excellent reasoning from other people.