Total Economic Overhaul

[doodle]

As some of you here might know, I subscribe to the ERE / Mr. Money Mustache lifestyle choice of less consumption and less work. Over the years I have basically reduced my consumption down to next to nothing other than the basic necessities of food and shelter. As far as clothing goes there is so much floating around in this country that you can basically clothe yourself for free. Along with making these changes over the years, my happiness and contentment has increased markedly as I no longer feel the stress to keep up with the Jonses or suffer from the delusion that my ego's desires or periodic suffering can be filled with something that money can buy.

When I talk about this topic with friends one of the first questions that comes up is "what would happen to the economy and all the jobs if everyone started consuming like you? My response is that "we would all work a hell of a lot less!"

Modern society has the productive capacity to feed, clothe, and house everyone with a minimal amount of effort. In the pre-industrial past, accomplishing this took nearly 100% of the labor force and a sizeable number of slaves to boot. Today you could probably do it with 20% of the population working full time. Because of the increases in effeciency in providing the essentials of life, the rest of our society has been deployed to jobs that amount to what in school was known as "busy work". The work doesnt really improve people's lives or happiness (although some still view wild consumerism as a ticket to paradise). They do things like manufacture the kind of crap that goes on to fill peoples garages or gets tossed in landfills shortly after it breaks. Others are engaged in marketing and advertising, in other words trying to convince the population that they really want to exchange their life's energy for the crap that these factories are churning out.

What has happened in my view is that our economy's growth and job producing capacity is increasingly dependent on increasing consumption among a group of people who are already over consuming to begin with. It is akin to keeping an obese person growing. He must continue to consume and consume food even though he is so fat that he cannot even fit through the door anymore. Taking this fat man as an analogy for the economy, what happens when he wants to go on a diet? Certainly it would be the intelligent and healthy choice, but it necessitates shrinking and not growing. In terms of the present structure of our economy this would result in very high unemployment.

So what is one potential solution to high unemployment when you have a group of consumers who simply dont want to consume any more? Stop working so damn much!! If our labor productivity has increased four times since the 1950's and everyone agrees that the 1950's had a pretty good standard of living, why cant we just work 1/4 of the amount? Maybe we could even work 1/6th as much and take the 20% who arent working and let them do something.

In other words, the solution to high unemployment is not to grow the economy and work harder, we need to all work less and take a break!

[Gumby]

Aren't you sort of talking about post-scarcity? We're not there quite yet. The cost of energy is still way too expensive.

EDIT: No, I guess you aren't talking about post-scarcity. Sounds like you're talking about a society that has given up trying to reach post-scarcity!

[Pointedstick]

I agree with everything you wrote, doodle. There's always real work to be done in an economy, but I think you're absolutely right that a large fraction of it today simply revolves around providing already debt-stricken people the latest iPhone, a brand new car, an even larger house, and so on and so forth. Very little of this stuff really makes you happier! It just burdens you with the expense and mental effort of storing, maintaining, repairing, and replacing it.

I'd love to see a monthly breakdown of your expenses, doodle. It sounds like you're a very advanced Mustachian/EREer. We could probably learn a lot.

[doodle]

Gumby,

Kind of, but not reality. We are already post scarcity if you consider human needs....food, clothing, shelter.  At present most humans wants know no boundaries so in that case a finite planet can never fufill human wants....endless energy or not. Even people making millions of dollars a year complain that they don't make enough to get by on. 

I'm proposing that the difference between scarcity and post scarcity in our world is simply realizing that you really don't want the "wants". 

[doodle]

PS,

I'll try to pull one together this weekend. Its a pretty short list after all 

[doodle]

I was just chuckling to myself trying to imagine if this became Barack Obama's new solution to our economic problems. Hahahahaha!!

I think there would be immediate impeachment hearings called. Everyone would think the man had lost his mind!

Put Obama's head on Bill Hicks in this little clip and imagine him delivering this from the Rose Garden and it would be a mighty entertaining experience:
http://www.youtube.com/watch?v=gDW_Hj2K0wo

[Pointedstick]

@TennPaGa

Married, one kid (3 mos), and I'm the only earner. It helps to have a very frugal partner, but my family thinks we're nuts and is constantly joking about calling CPS on us for not buying him more toys and books all the time, which apparently counts as abuse to them! Real funny joke...

[doodle]

Im in a relationship with someone who isn't presently sure whether or not she is wants to live this way. For me it is easy to find entertainment and contentment. I can draw a checkerboard with a piece of chalk on the sidewalk and play with rocks from the garden and be totally content. I realize that this doesn't fit into everyone's conceptions of what "life" should be like. My GF presently works and has the freedom to spend her money as she sees fit. I set up an investment account for her and taught her to set aside money. She gets it on one level, but in other ways it doesn't really register. She likes the idea of the freedom, independence and security that this lifestyle brings, but she isn't sure she is willing to make the sacrifices. It's a delicate balancing act. Ultimately time will tell what happens. I've given up taking it too seriously. As our financial futures aren't presently linked, there is little reason to bicker.

[moda0306]

The problem is that even though we could all consume a lot less and then work a lot less, we still have fixed expenses that won't change, and, more importantly, so do businesses.

First off, I'm a big environmentalist and a bit of a minimalist, so I am fully disgusted with such a consumerist economy.  However, I'd rather see businesses left and right shutting their doors simply because they could barely make their mortgage payments or pay their fixed expenses.

That's all I have... with debt, we've built up a Plateau of fixed expenses that means things get messy when we all decide to consume 3/4's as much and work 30 hours per week.

[Pointedstick]

The problem is that even though we could all consume a lot less and then work a lot less, we still have fixed expenses that won't change, and, more importantly, so do businesses.

IMHO, most "fixed expenses" are anything but. On the consumer side, debt payments can be eliminated by paying off the principal; mortgage and rent payments can be eliminated by owning your home outright; food payments can be substantially reduced by growing your own food and raising chickens; car expenses can be eliminated by not owning a car, which you have much less need of once you don't need a job anymore. Those are the four major expenses in most peoples' budgets, so once you're out of debt, you own your own home, you have no car (or at the most, an old, lightly-driven and -insured car that you can maintain yourself), and you create much of your own food, you're easily in the realm of spending less than $1,000 a month. At that point, you can happily work a part-time job at Radio Shack if you ever find yourself in need of more funds.

But let's not fall into the trap of turning every micro topic into a macro problem. It's highly unlikely that any more than even 2% of the population will ever do any of this. And if they did, the businesses would adjust accordingly.

[moda0306]

PS,

But if we quit turning every debate into a macro issue, we'd be in a big mess... NOBODY would understand macro.  One person may be able to not understand macro, but if we ALL misunderstand macro we have a true crisis.  For the sake of logical consistency on a macro level, we must turn every debate into a macro debate.

If we don't hear from some of the Austrian-types on this blog, I think we can assume this post made their head explode in a fit of rage.

[doodle]

Moda,

I think what I'm driving at is how do we tame the economic monster of growth that we have created? Any rational person will recongize that a finite system cannot grow forever, therefore we are going to have to confront the reality of a steady state economy sooner or later. When the natural reality of our earth goes head to head with our economic religion, it is pretty obvious which one is going to win.

The problem we have today in our economy is not one of production. We can produce enough for everyone. The problem we have is distributive. Labor is being poorly distributed among capable working people resulting in high unemployment. The products of our labor are being poorly distributed among the people resulting in situations like we have today where millions of houses sit vacant.

I really feel that capitalism as it is structured is starting to experience some of the sticky issues that Marx raised in Capital.

[Pointedstick]

Touché, moda!

Back to the subject… one thing I'd like to point out is that there really are two schools of thought: Early Retirement Extreme and Mustachianism. ERE is all about eliminating basically all expenses, if possible, and it's got a very zen bent to it, which is perhaps why it appeals to doodle. ERE is all about getting rid of your car, living in an RV or off the grid, not having a cell phone, raising goats and chickens, and being entertained by the wonder inherent in the world, and perhaps a trip to the library.

Mustachianism is more about living a more "normal-looking" life, but with extreme efficiency. So you can own a nice house, but it has to be totally paid off, and you can have your car, but it has to be fuel-efficient, maintained by you, lightly-insured, and ignored for short-distance trips. You don't have to grow your food, but you need to cook all your meals yourself with extreme efficiency. You can have your cell phone--and it can even be an iPhone or other smartphone--but it needs to be on a cheap prepaid plan and use efficient software services like Google Voice and Skype.

I feel that most people could probably be a lot more Mustachian, but ERE really takes a special kind of dedication and philosophical commitment to minimalism.

[Pointedstick]

Moda,

I think what I'm driving at is how do we tame the economic monster of growth that we have created? Any rational person will recongize that a finite system cannot grow forever, therefore we are going to have to confront the reality of a steady state economy sooner or later. When the natural reality of our earth goes head to head with our economic religion, it is pretty obvious which one is going to win.

The problem we have today in our economy is not one of production. We can produce enough for everyone. The problem we have is distributive. Labor is being poorly distributed among capable working people resulting in high unemployment. The products of our labor are being poorly distributed among the people resulting in situations like we have today where millions of houses sit vacant.

I really feel that capitalism as it is structured is starting to experience some of the sticky issues that Marx raised in Capital.

IMHO, the problem is not with production or distribution, it's overconsumption of luxuries at the expense of being able to afford the necessities. In fact, it's because of the high levels of production of many goods that they're so cheap for people like us who consume little and look for good deals. Distribution isn't a problem really because people have access to everything they need, they just don't have the funds to afford it due to indebtedness and high recurring monthly expenditures.

I think that most people could drastically cut down their consumption of expensive things that don't contribute to happiness and have more than enough money to buy the essentials. They could probably buy an inexpensive house or condo outright in many places after a few years of diligent saving. Most people don't do the math to realize just how much recurring expenses cost them. A $500/mo car expenditure doesn't really give much functionality beyond what you get from a $100/mo expenditure, but it costs you $4,800 a year that you could be putting toward freeing your life by owning your dwelling outright, for example. There are members of my family who are heavily indebted yet they still eat out multiple nights a week and have expensive gym memberships! It breaks my heart to see them dig themselves deeper like that.

[doodle]

Although this post started out on the topic minimalism, I think that Marx is tangentially related. I have underlined the most salient points that I see occurring today.

Karl Marx (1818-1883) claimed that capitalist societies suffered from two unresolvable problems that would prevent both social harmony and a stable economic life. First, Marx assumed that the competitive processes of a capitalist market society would lead to a concentration of capital ownership in fewer and fewer hands (see food producers, farmers, banks for some good examples) . Marx built this claim on the assumption, which he holds in common with laissez faire economics, that a competitive economy must lead inevitably to the elimination of some producers by others, there must be winners and losers and the winners would grow increasingly large. Capitalism, Marx argued, contrary to the general assumption of laissez faire economics, had an inherent tendency towards concentration of capital in oligopolies and monopolies. The concentration of capital involved, first of all, the displacement of the handworker and the craftsworker and increasing domination of factory-based technology. An industrial proletariat of wage workers emerged, and grew larger, as independent producers were eliminated by factory-based competition. Capitalist corporations grew more concentrated and larger, the number of individuals owning the means of production became fewer. The class structure becomes polarized and the economic and social conditions of the two opposed main classes more strongly contrasted, leading to political activation of the working class and prolonged conflict with the dominant bourgeois class through political and industrial organization. (like it or not this is what is emerging in our country) It is this development of social polarization that provides the unsolveable social or relational contradiction of capitalist society. The social organization of a capitalist society also presented an inherent structural contradiction in the economic dynamics of capitalism. While capitalism revolutionized the means of production by promoting the greatest economic development in human history, its class structure focused the capacity to consume in a tiny minority of the population.(See concentration of wealth statistics for United States) The mass social scale of production could not remain compatible with the concentration of wealth in fewer and fewer hands. As a result, there must be inherent instability, or anarchy, in the whole capitalist system of production. The social effects of such instability in turn must intensify the political struggle of social classes hastening the event of socialist revolution.

[doodle]

PS,

IMHO, the problem is not with production or distribution, it's overconsumption. In fact, it's because of the high levels of production of many goods that they're so cheap for people like us who consume little and look for good deals. Distribution isn't a problem really because people have access to everything, they just don't have the funds to afford it due to indebtedness and high recurring monthly expenditures.

I think that most people could drastically cut down their consumption of expensive things that don't contribute to happiness and have more than enough money to buy the essentials. They could probably buy an inexpensive house or condo outright in many places after a few years of diligent saving. Most people don't do the math to realize just how much recurring expenses cost them. A $500/mo car expenditure doesn't really give much functionality beyond what you get from a $100/mo expenditure, but it costs you $4,800 a year that you could be putting toward freeing your life by owning your dwelling outright, for example.

Mustachianism has its own inherent contradictions however. Namely, that it depends on the vast majority not subscribing to its philosophy allowing a few to reap the benefits of the overconsuming herd. Mr. Money Mustache gets people to take action in the correct direction by placing things in microeconomic terms that they can understand. In other words, "do it for yourself"....instead of the traditional idea of "do it for the planet!"The reality though is that he realizes that he is trying to effect large social change by tapping into individual action. Here is what he had to say in that respect:

Yeah, I try to keep things on the individual level in most of the articles, but really our collective future as a species is what it’s all about, and it’s why I write the blog.

At the moment, we’re wasting out time/energy/money/natural resources on a lifestyle that is mostly bullshit, so we need to fix that by embracing a more satisfying lifestyle.

It happens to make you very wealthy in the process, but that’s just a convenient side-effect. Really we’re saving the world.

[Pointedstick]

I don't see that as a contradiction. As you point out, MMM understands that all the micro changes would have a macro effect if everyone did it; that's the point, in fact! If the world changed in that manner, I do not think it would make Mustachianism impossible. It would actually make it easier, because there would be less demand for anti-Mustachian goods and services that impoverish you anyway.

As for Marxism, I feel like the root of the problem with it and your allusions to it are embodied in this sentence:

While capitalism revolutionized the means of production by promoting the greatest economic development in human history, its class structure focused the capacity to consume in a tiny minority of the population.(See concentration of wealth statistics for United States)

In actuality, capitalism democratized the capacity to consume across the whole of the population by allowing people to earn a wage for their labor rather than have no other option than to produce and sell goods directly. That's the problem we're discussing here, as a matter of fact: that when given the ability to consume without limit, many people get themselves into trouble by spending more than their income and enslaving themselves to banks and governments that lend them money so they can avoid changing their behavior.

But before industrial capitalism, families had virtually no capacity at all to consume beyond what they produced for themselves. Voluntarily returning to that standard is what ERE is all about, but even Jacob admits that it's not possible without the prosperity unleashed by capitalism. In essence, capitalism creates so much wealth and abundance that it allows ERE to be ERE rather than pre-capitalist subsistence farming, which is what it would be if you took away the farmer's income-producing investment portfolio and consumer goods.

[doodle]

In actuality, capitalism democratized the capacity to consume across the whole of the population by allowing people to earn a wage for their labor rather than have no other option than to produce and sell goods directly.

I think this is what Marx and others like Chomsky term as "wage slavery". In other words people lose control of the fruit of their labor. This leads to alienation and other issues. 

[Pointedstick]

But they don't have to. Industrial capitalism didn't destroy our ability to build our own houses and grow and raise our own food (what everybody did before industrial capitalism). Rather, industrial capitalism produces so much amazing stuff--including the internet and computers that you and I are using to communicate right now--that nearly everyone wants to engage in wage labor to afford the amazing goods. The problem arises when people start to purchase more than they can afford, which is when they become debt slaves. Even when everything's in perfect balance (i.e. no savings), you are not a debt slave but a wage slave since you are dependent on the wage for your continued enjoyment of the goods and services.

But it's important to remember that these conditions are voluntary, which is what MMM and Jacob preach. You decide to become a wage slave or a debt slave by not saving enough of your income yet still partaking of modern pleasures. Capitalism didn't enslave us. It simply gave us the tools to enjoy the prosperity that we've apparently always wanted, while leaving up to us how dependent on others we want to become in our enjoyment of it.

ERE and Mustachianism are all about figuring out how to opt out of the dependence aspect while still enjoying the prosperity. If you can save 80 or 90% of your income, you only need to work for three or four years and then for the rest of your life you can enjoy the fruits of industrial capitalism without having to be a wage laborer! But if you didn't care about the modern conveniences and prosperity, you could opt out right now by building a log cabin deep in the woods and growing your own food and living the kind of lifestyle common to nearly everyone prior to the 18th century.

[doodle]

True! A tools effectiveness depends in large part on who is using it. Capitalism is surely a powerful tool at creating material wealth. No one would argue that point....not even Marx. The question then is why today the tool seems to have become the master.

Our economic system seems to have grown into an out of control beast. We have established that we have the productive capacity to feed, clothe, and house everyone on this planet probably two times over with relatively little effort. Despite this, all of our leaders are saying that our problem is that we need to grow our economy even more. We need to produce even more as if we didn't have enough and that is why so many people are suffering.

This just doesn't make sense to me. Its like telling an obese person that their ailments are a result of a lack of nutrition and they need to eat even more.

[Pointedstick]

It's because a growing economy is needed to employ people so they can consume the proceeds of the economy. Tautological, right? The problem is that all the unemployed people made poor decisions when they were still employed. Back when they had an income, they could have worked toward paying off their credit card debt and houses. Had they done those things, they would have reduced their dependence on their wage. But all is not lost, since they can still start vegetable gardens, downsize their cars and cell phones, and cancel the cable TV service and gym memberships.

When you're earning a wage, you're being given the opportunity to make yourself free from it by purposefully underconsuming. The more people are financially free, the lower the necessity for a constantly growing economy. What need do people have for wages and jobs and constant monetary expansion when they live in handmade houses, grow their own food, get around by bicycle, and know how to maintain and repair what few gadgets and appliances they own?

In a way, this is kind of what Japan is doing. They have high savings rates and a slowing economy with slight deflation, yet still manage to live happy luxurious lives. It's not that they're all EREers of course, but clearly it's possible.

[doodle]

The problem is that all the unemployed people made poor decisions when they were still employed. Back when they had an income, they could have worked toward paying off their credit card debt and houses. Had they done those things, they would have reduced their dependence on their wage. But all is not lost, since they can still start vegetable gardens, downsize their cars and cell phones, and cancel the cable TV service and gym memberships.

When you're earning a wage, you're being given the opportunity to make yourself free from it by purposefully underconsuming. The more people are financially free, the lower the necessity for a constantly growing economy. What need do people have for wages and jobs and constant monetary expansion when they live in handmade houses, grow their own food, get around by bicycle, and know how to maintain and repair what few gadgets and appliances they own

PS, my "something doesn't make sense radar" keeps going off with this idea. People earning an income depend on those around them consuming the goods that they produce.  Consumers go into debt to buy things precisely because our economy is capable of producing so much more than we as individuals have the wages to consume. The paradox is that our economy can produce so much, but we as individual have to go into debt to buy up what we ourselves produced??? And if we don't go into debt to buy these things that we produce, we get laid off from our jobs because there is no demand for the objects that we produce and thus we can't consume anything because we have no money although our productive capacity hasnt changed.

This is a bit like a tragedy of the commons type problem. If everyone sees the ERE light and cancels their gym memberships and cable TV we move in a retrograde direction. But if everyone keeps consuming and thus keeps the wheels of production turning, we keep growing ever more indebted.

My head is swimming...I'm gonna walk away for a bit and come back to this later with more clarity.

[Pointedstick]

No, you're not crazy. You're just talking macro and I'm talking micro. On a macro level, less consumption results in less production. But on this macro level, less production leads to less employment and therefore fewer wages with which to consume or save. It's the deflationary death spiral theory. I'm not so convinced that it's the worst thing in the world over the long term and on a macro level, since it leads to deleveraging and increasing self-reliance. But in the short term and on a micro level, it certainly is bad for people who depend on wages for their livelihood, since they will have to cut consumption to avoid becoming debt slaves, thereby contributing to further loss of production.

We should be happy that people like you and I are rare and haven't really affected the macroeconomy much. It lets us mooch off the fantastic productivity and wealth accumulation possibilities. But I really doubt that more than 2% of the population will ever follow ERE or MMM.

[TBV]

I've always wondered why farmers, who always produce far more than they consume, don't just pack it in and keep a small garden for themselves and their families.  The rest of their time could be spent fishing or composing haiku.  I'm sure no harm would come of this....    

On second thought, millions of folks who find themselves packed into high-rise urban transit villages might feel a bit constrained as they jostle for gardening space on rooftops already packed wall to wall with solar collectors and green roof ground cover.  Perhaps, in the final analysis, there really is some wisdom in the specialization of labor and maximization of efficiency (as in economies of scale.)  Better to have surpluses with 2% of the population farming than shortages with 98% trying to farm and doing a poor job of it.

In a society where things are as they already are, being a minimalist is a beautiful expression of personal freedom and self-awareness.  But as a strategy for more than a very few, I'm afraid it's chock full of problems for which the usual suspects will no doubt resort to the usual redistributive "solutions."

[doodle]

TBV,

I agree ERE works at the micro level, but not necessarily at the macro level. The question I have though presently is whether the solution to our economic woes is more growth. If we are already producing so much that Americans are having to rent storage space to hold the stuff that won't even fit in their overflowing garages, is our economic problem a function of needing to create more? The dresser in my bedroom is 150 years old and the table I'm about to inherit from my parents is about the same age. I will probably never buy another table in my life. Good for me, good for the environment, good for the fact that no one needs to spend the effort to make another table but ironically not good for economic growth.....our economic model seems to be at odds with common sense.