Religion begot prosperity, and the daughter devoured the mother.
—COTTON MATHER
The Amish communities of rural northern Indiana are just a couple of hours east of Chicago if you push it on the interstate, but they might as well be a world away. They mostly eschew the trappings of modernity; people get around in horse-drawn carriages and make or grow much of what they need. Materialism isn’t normally one of their biggest problems.
But by 2007 the Amish were changing. Their part of Indiana is home to some recreational vehicle and modular-home factories, which pay well. And the Amish are good workers. More than half the men in communities like Shipshewana and Topeka had taken full-time jobs and by one estimate were averaging $30 an hour. Mervin Lehman, an Amish father of four, told the Wall Street Journal “he was making more than $50-an-hour and working up to 60 hours a week as an RV plant supervisor before he was laid off” in November 2008.
With money like that rolling in, Amish customs came under pressure. The traditional refusal to use the telephone began to weaken, and some Amish entrepreneurs adopted fax machines. Amish carriages were sometimes given velvet linings or were attached to pricey Dutch harness horses (the equivalent of trading in your Camry for a Lexus). Weddings got bigger and costlier. Some Amish began taking taxies on shopping trips, and using hired hands for help instead of neighbors to avoid incurring any obligation to reciprocate. Some even bought second homes in Florida. About spending, at least, the Amish were starting to act like everyone else.
The transformation, never complete, came to a halt in 2008 when the RV industry started laying off workers. That in turn slashed deposits to the Tri-County Land Trust, a local Amish-operated lending cooperative of the kind that exist in many Amish areas. It’s only open to the Amish, doesn’t carry federal deposit insurance, and doesn’t run credit checks on potential borrowers. But it does follow the ultraconservative financial practices once common among thrift institutions, including keeping large cash reserves and making sure mortgage payments don’t exceed a third of a homeowner’s income. Tri-County symbolized the Amish traditions of trust, mutual support, and financial prudence—all of which were undermined by the local boom. Soon after the RV downturn, rumors spread that Tri-County was in trouble, culminating in a six-week bank run. Panicked depositors, distrustful of their own institution, wanted their money back.
Nobody knows better than the Amish that affluence can lead to excess—and nobody could be less typically American than “the plain people,” as they are traditionally known. But the Amish experience of sudden wealth in this story is emblematic of America’s larger struggle with prosperity, particularly the bubble prosperity that was fueled by debt and artificially inflated asset prices. In Indiana, easy money undermined values that had stood the Amish in good stead for a long, long time, including self-control and the community ties that bolster it.
The same thing happened to the rest of us, and in this we Americans were not alone, for until the recent troubles the entire world was awash in cheap money. Easy money changed the culture of Iceland until the recklessness of its bloated banks effectively bankrupted the whole country. Easy money inflated housing bubbles in Australia, Ireland, Spain, the United Kingdom, and elsewhere. And then there are the Greeks—the moderns, not the ancients—who hid the true size of their deficits from everyone, including themselves, until public spending and private tax evasion brought their country to the brink.
When money is cheap, borrowing is easy and nobody is terribly interested in deferring gratification. Credit in itself is not evil; on the contrary, it is the lifeblood of civilization, which it underwrites by fueling innovation and prosperity. The term credit comes from the Latin credo, meaning “I believe,” and it implies a faith in tomorrow on the part of borrower and lender alike. But when credit is used to fund consumption rather than investment, we are taking from the future rather than investing in it, and for a while doing so became a near-universal practice. Since the turn of the twenty-first century, for example, credit card issuance had exploded practically everywhere, and by 2008, more than two thirds of the world’s 3.67 billion payment cards were circulating outside the United States. In South Korea, at one point, 148 million cards were issued—in a country of 49 million people—until default rates reached 28 percent and the industry imploded. Credit card debt in Turkey grew to $18 billion in 2007, a sixfold increase in just five years.
A Double-Edged Sword
No invention did more for the human ability to defer gratification than money. Before money, saving was hard; you might dry some fish, or squirrel away some nuts, but money’s unique properties as a store of value and an easily calculated medium of exchange made it especially effective at encouraging forethought and calculation. But money also renders wealth easier to spend, literally melting it down so that it can flow like water if you’re not careful.
Just as money can be a double-edged sword, so too can capitalism, which Adam Smith praised for giving each of us strong incentives to moderate our behavior in socially productive ways—the better to assure our success in the marketplace. Capitalism really has been a powerful force on behalf of responsibility and temperance, inculcating such bourgeois habits as study and nonviolence, as well as legal and social structures that support these virtues. “A man is seldom so innocently employed,” Samuel Johnson observed, “as when he is getting money.”
In keeping with this tradition, the workplace is for the most part a citadel of moderation and restraint. In the modern office we’re called upon to put forth more self-control than ever—particularly now that we mostly work in jobs interacting with people instead of animals or machines. In our work lives—and more of us work outside the home than ever—we’re expected to regulate our comportment, our attitudes, and our outbursts, smile at visitors, refrain from off-color remarks, remain awake despite every postprandial impulse to the contrary, and in general keep all corporeal aspects of ourselves strictly under wraps. If we face customers all day we have to check the impulse to laugh at those who look ridiculous, to slap the rude ones silly, or, if they’re attractive, to suggest that they strip. It’s only after we knock off for the day that the system begins its hysterical whispering in our innermost ear. “Cut loose!” it says. “Buy. Eat. Screw.”
And that’s where the trouble starts, for in our lives as consumers, capitalism does everything it can to seduce our more indulgent selves— sometimes urging us to indulge so unrestrainedly that the system itself is endangered, as it was recently by a global debt orgy. Karl Marx saw the destabilizing nature of the system quite clearly, observing that capitalism, “wherever it has got the upper hand, has put an end to all feudal, patriarchal, idyllic relations. It has pitilessly torn asunder the motley feudal ties that bound man to his ‘natural superiors,’ and has left remaining no other nexus between man and man than naked self-interest, than callous ‘cash payment.’ ”
This is precisely its glory, for anyone who prefers not to live in feudal peonage just because it is time-honored and picturesque. But capitalism cannot thrive without some moral and cultural framework to contain or at least channel its gales, for the essential contradiction of the system is that it’s bent on producing self-controlled workers yet disinhibited shoppers—and thus undermines the self-mastery it inculcates. Adam Smith understood this, and regarded self-control as crucial. He also predicted the need for a larger state, which a capitalist society could well afford thanks to the great wealth it produces.
Unfortunately, capitalism tends to undermine the restraints we impose on it for its own good. Lobbyists oppose controls and people are clever at getting around them. Capitalism appears to suffer from a kind of bipolar disorder; during manias, it’s buoyed by euphoria and blind to its own shortcomings. Out of the way, it proclaims confidently, blinkered by its amazing powers. At such times you can almost see the breakdown coming. Sure enough, things soon get out of hand, and the arrogant colossus turns into a pathetically gibbering hulk, its grand schemes in tatters.
In fairness, prosperity is often a plus on the self-control front. In general, the affluent are better at deferring gratification; people’s talents in this arena may even be the cause of their affluence rather than its consequence. Perhaps that’s why well-to-do Americans, for whom food is relatively cheapest, are paradoxically least likely to be overweight. But sudden access to a lot of money makes for problems, as we’ve seen from the many lottery winners who’ve run off the rails over the years. The difficulty seems to occur when affluence outstrips culture, as it can when credit expands much faster than custom or cultivation can contain it. That’s why indebtedness can be such a problem—because it instantly bestows wealth beyond our accustomed capacity to manage it. The explosion of credit we’ve seen during the past thirty years was especially likely to lead to trouble, since it lifted a constraint on people’s spending without giving them any more income. Basically, we put a blank check into everybody’s pocket, along with a pen to fill in the amount. It’s possible that a person’s income is a broadly reasonable indicator of his self-regulatory resources, which means that magnifying people’s earnings with enormous borrowing power is just begging for trouble.
Americans and Their Money
Our willingness to cash that blank check—to take on debt—is a function of our changing attitudes toward money. When did profligacy replace thrift? The short answer is: right around the time when we could afford it. The process got going in earnest somewhere between the 1880s and 1920s, when the country transformed itself from a nation of want into one of, well, wants. Unbridled economic growth undermined the Protestant ethos of self-denial and reticence, while the rising merchant class did its best to change the country’s long-ingrained aversion to luxury. Consumer credit became more widely available, and religious denominations laid off the hellfire and brimstone in favor of a therapeutic approach to happiness in the present. Vast new big-city department stores leveled the full force of their merchandising grandeur at women, who understandably preferred to purchase items they once had laboriously to make.
America had changed, and Americans were changing, too. Pleasure was no longer quite so readily suspect. We were becoming “a society preoccupied with consumption, with comfort and bodily well-being, with luxury, spending, and acquisition, with more goods this year than last,” in the words of historian William Leach, who quotes the merchant Herbert Duce summing up the new culture in 1912: “It speaks to us only of ourselves, our pleasures, our life. It does not say, ‘Pray, obey, sacrifice thyself, respect the King, fear thy master.’ It whispers, ‘Amuse thyself, take care of yourself.’ Is not this the natural and logical effect of an age of individualism?”
Catalyzed by mass communications (which made possible the stimulation of mass desire through advertising) and the rise of an urbanized middle class, consumerism exploded. From just 1890 to 1904, annual piano sales (to pick a single emblematic example of the growing democratization of affluence) rose from 32,000 to 374,000. “History,” Charles R. Morris avers, “had never seen an explosion of new products like that in the America of the 1880s and 1890s.”
All this shopping caught the attention of two important social theorists, one of them famous and the other largely forgotten. It’s yet another irony in the saga of America’s love-hate relationship with thrift that we live by the precepts of the thinker whose name hardly anyone remembers.
First, the one you know about. Thorstein Veblen, the peripatetic Norwegian American economist (he died in 1929, shortly before the great crash that might have brought him grim satisfaction), is best known today for his theory of conspicuous consumption, which argued that a lot of spending is just a wasteful attempt to impress. Veblen explained consumerism in terms of status and display, bringing evolutionary ideas to bear on economics and consumer behavior, to powerful effect. Reading Veblen is a little like reading Freud or Darwin, albeit on a smaller scale; do so and you’ll never look at the world in quite the same way again.
The iconoclastic Veblen took a dim view of all the conspicuous consumption around him, regarding it as a species of giant potlatch in which competitive waste had run amok. You might call Veblen’s the voice of thrift, and it is still heard today from leftist intellectuals who, from their tenured pulpits and arts and crafts homes, reliably denounce the spending of others (mostly the bourgeoisie; it’s up to conservatives to denounce the spending of the poor). The truth is that nobody listens to these people, except to submit to their periodic floggings as a kind of penance for sins we have no intention of not committing.
But there was another voice heard back when thrift was in its death throes—that of Simon Patten, who was, like Veblen, a maladjusted economist with strong ideas about spending. Patten can seem naïve and even crass to us today, for he used his pulpit at the University of Pennsylvania’s Wharton School to advocate the very thing that Marx feared: that business and consumer spending should sweep away all the old arrangements and remake the world according to the doctrine of plenty. Affluence, in Patten’s view, would breed self-restraint by lightening the burden of monotonous and backbreaking labor, leaving human virtue to flourish amid plenty. But he recognized that abundance must be accompanied by education and external constraint if it was to leave us truly better off. Schools could educate the young about the implications of affluence, while colleges and universities could inculcate self-control and other good habits. Government had a role to play as well, both in adopting legal constraints such as limits on consumer credit and financial speculation (he even advocated Prohibition) and in creating something like a classless society through taxes and redistribution. More than once, Patten warned that unfettered getting and spending “could create a society dedicated to gluttony and vice.”
Yet the fact remains that, unlike Veblen, Patten came on the scene not to praise thrift but to bury it. The old values that “inculcated a spirit of resignation” and “emphasized the repression of wants” must be abandoned, Patten argued. “Restraint, denial and negation” were old hat. “The principle of sacrifice continues to be exalted by moralists at the very time when the social structure is being changed by the slow submergence of the primeval world, and the appearance of a land of unmeasured resources with a hoard of mobilized wealth.”
Patten was hugely influential in his time, especially in helping liberals to see that something like Adam Smith’s “universal opulence” should be a goal and not a cause for shame. His particular genius was in recognizing capitalism’s potential to realize something like a modern Cockaigne, the mythical land of plenty that beguiled the suffering masses in the Middle Ages. His thinking opened the door to such later fulfillment-oriented intellectuals as Abraham Maslow and Herbert Marcuse, who implicitly (or explicitly) disparaged the idea of deferring gratification—a notion that would come to seem as pointlessly self-sacrificial as postponing happiness until the afterlife.
The embrace of affluence—and especially expenditure—was also promoted by advocates of organized labor and the eight-hour workday. George Gunton, for example, started from the premise that greater consumption was better for labor; more leisure for workers would give them more time for consumption, and this increased demand would translate into more demand for labor, higher wages, and a higher standard of living for all. Gunton regarded affluence as an unalloyed good and didn’t fret much about constraint. This stance put him on a slippery slope that eventually led him to justify all kinds of consumption, until finally he was extolling the 1895 opening of Biltmore, George Vanderbilt’s surreally vast North Carolina monument to conspicuous consumption, whose 125,000 acres and 250 rooms included forty-three bathrooms, sixty-five fireplaces, an indoor pool, and a bowling alley.
The eight-hour workday gradually caught on (and was enshrined in federal law in 1916), but Grunton never had as much status or influence as Patten or Veblen. Both of the latter were right about consumerism, in important ways, but of the two, Patten was the true radical, and beside his starry-eyed utopianism, Veblen’s sour conservatism is plain to see. As things turned out, it’s Patten’s world we live in, even if we use the language of Veblen to understand it.
Patten and Veblen both died in the 1920s, during which affluence, technology, and changing social mores joined forces to drive a stake through the heart of pecuniary restraint. When the Great Depression came along, yet another economist, this one more important than either, would provide the intellectual justification for banishing frugality once and for all. If Patten considered affluence to justify the abandonment of thrift, John Maynard Keynes used the lack of affluence to reach the very same conclusion.
To Keynes, thrift was the enemy, for it was consumption that spurred growth. Saving was all well and good, but the paradox—the now-famous “paradox of thrift”—was that if people saved too much, everyone would be poorer, because a lack of spending can kill the economy. Economic health rested on consumption, and Keynes’s prescription for the Great Depression was to increase government spending to spur increased private spending. If necessary, he said, government ought to bury cash so that people could have the remunerative work of digging it up. When everyone was out spending again, as they ought properly to be, the economy would recover. And basically, Keynes was right.
After World War II (during which Americans saved roughly a quarter of their income), the U.S. economy went into overdrive. In his 1954 study People of Plenty: Economic Abundance and the American Character, David M. Potter said of the American that “society expects him to consume his quota of goods—of automobiles, of whiskey, of television sets—by maintaining a certain standard of living, and it regards him as a ‘good guy’ for absorbing his share, while it snickers at the prudent, self-denying, abstemious thrift that an earlier generation would have respected.” Or as William Whyte put it two years later in The Organization Man, “thrift is becoming a little un-American.”
Self-control met its Waterloo in the 1960s, whose worthy liberations have happily outlived most of the decade’s intellectual (and sartorial) excesses. The emphasis in those noisome days was on escaping not just the tyranny of capitalist-inflected social control, but also aspects of self-control that seemed of equally dubious provenance. The youth culture’s embrace of consciousness-altering drugs can be seen as a turn to pharmacology for help in overthrowing a superego so insidiously effective we might not even be aware of its string-pulling and repressiveness, so familiar and even comfortable were its constraints. The interest in Eastern mysticism, meditation, free love, and other means of getting over and around ourselves—in letting it all hang out—was part of the same revolutionary upheaval. Brink Lindsey sums up the consequences with something like mimetic exuberance: “Freed from physical want and material insecurity, Americans in their millions began climbing Maslow’s pyramid. They threw over the traditional Protestant ethos of self-denial and hurled themselves instead into an utterly unprecedented mass pursuit of personal fulfillment, reinventing and reinvigorating the perennial quests for belonging and status along the way. The realm of freedom, once imagined as a tranquil, happily-ever-after Utopia, turned out to be a free-for-all of feverish and unquenchable desire.”
The sixties were followed by the seventies—and relentlessly rising prices, a powerful force for discouraging delay of gratification. Inflation, after all, creates the expectation that everything will be more expensive tomorrow, so the sensible thing to do is buy today. Saving is foolish, since your money will be worth less later on. But borrowing is smart, because a dollar borrowed today can be paid back with cheaper dollars down the road. Remember, money is only worth what it will buy, and when inflation is entrenched, everyone believes the value of money is eroding.
Inflation leapt up in America as a new generation—the baby boomers—were coming of age, the product of a new, more relaxed approach to child rearing. Parents who had grown up making the sacrifices required by the Great Depression and the Second World War would create a child-centered suburban paradise for their offspring in the sunshine of the great postwar economic boom. For complex reasons, that boom yielded to the stagflation of the seventies—which in turn led to the election of Ronald Reagan as president.
Recall that his opponent in 1980 was the incumbent Jimmy Carter, a Baptist regarded by many voters and comedians as a scold. Carter was self-control personified, lusting only in his heart and showing great restraint in the Iran hostage crisis. He chastised the electorate for indulgence and malaise, and even allowed himself to be seen in a beige wool cardigan, urging us to turn down our thermostats. Carter seemed to embody Aristotle’s distinction between the continent man, who resists harmful indulgences he would dearly love to embrace, and the temperate man, who is simply refraining from excesses he probably wouldn’t enjoy anyway. Expecting such a temperate president to get elected twice was probably asking a lot of the voters.
The gilded presidency of Ronald Reagan was something else again. It was not about limits or asceticism or self-restraint, except to the extent that people were supposed to be responsible for themselves. To Reagan, material desires were not shameful but perfectly legitimate and worthy of pursuit. Reagan cut taxes, said no to unions, and expanded on the deregulatory impulses of the previous administration. The heroic Paul Volcker, who was Federal Reserve chairman under both presidents, ruthlessly expunged inflation and demolished giant swaths of industrial obsolescence by jacking up interest rates.
Baby-boomer energy, unfettered capital, technological innovation, and a huge and growing pile of pension-fund assets fueled an economic boom that persisted, with a few hiccups, right into the first few years of the twenty-first century. It was helped along by cheap imports from Asia, an influx of hardworking immigrants, and what would later come to seem an insanely accommodating monetary policy espoused by Volcker’s libertarian-leaning successor, a former clarinet player named Alan Greenspan. The effect of all this was huge, perhaps even revolutionary, as the historian John Patrick Diggins explains: “With the 1980s came America’s ‘Emersonian Moment,’ when people were told to trust not the state but the self and to pursue wealth and power without sin or shame. Far from being a conservative, Reagan was the great liberating spirit of modern American history, a political romantic impatient with the status quo.”
Unfortunately, his administration’s emphasis on individual financial empowerment and deregulation left us vulnerable to ourselves.
The Recent Crash
“Lead us not into temptation,” Jesus says in the New Testament, “but deliver us from evil.” There may have been evils from which Reagan delivered us, but there is little doubt that, as Diggins concludes, “Reagan led America into temptation,” and we’ve hardly stopped spending ever since.
A few numbers tell the story. Home equity debt rose from $1 billion in the early 1980s to more than $1 trillion by the time of the 2008 crash. Since the early Reagan years, overall household debt more than doubled as a percentage of gross domestic product. The national savings rate hit zero in 2005 and 2006, although it’s risen since. From the time of Reagan’s first inauguration, personal bankruptcies per capita have risen sixfold. There were more than a million in 2008 alone.
How did all this happen? It wasn’t just that Reagan legitimized consumption, although he did. More concretely, the Reagan era vastly expanded the freedom of choice we enjoy—and must cope with—as consumers and investors. Now, to a greater extent than ever before, we are masters of our own finances. Traditional employer-paid and -managed pensions have increasingly given way to self-directed retirement vehicles that individuals must fund and manage themselves, putting the onus on workers not just to set aside the money but to figure out how to invest it. Borrowing has become much easier. Once-exotic mortgage products have been made widely available to citizens who are often only dimly able to understand them.
Most people are ill-prepared for this brave new world. When I taught graduate students for a semester at a top university, I was amazed that they mostly didn’t know a stock from a bond, or even a deposit from an investment. They weren’t clear on where the government gets money, either. (They assumed taxes were levied mainly on wealth rather than income.) If these well-educated and worldly young adults were so completely in the dark about money, what does that say about everyone else?
But knowledge is no guarantee of prudence. “If there was anybody who should have avoided the mortgage catastrophe,” writes Edmund Andrews, “it was I. As an economics reporter for the New York Times, I have been the paper’s chief eyes and ears on the Federal Reserve for the past six years. I watched Alan Greenspan and his successor, Ben S. Bernanke, at close range. I wrote several early-warning articles in 2004 about the spike in go-go mortgages . . . But in 2004, I joined millions of otherwise-sane Americans in what we now know was a catastrophic binge on overpriced real estate and reckless mortgages.”
By now it’s a familiar story. Alan Greenspan and the Chinese made borrowing too easy, unfettered bankers chose greed over sobriety, and consumers snapped up McMansions financed by loans they could never repay. In 1980, the year Reagan was elected, American household debt stood at what must have seemed the enormous sum of $1.4 trillion. In 2008 the figure was ten times larger. Is it any wonder there were more than a million consumer bankruptcy filings that year? Or that the nation’s banking system came close to collapse? The result of all this excess is a population hungover from its recent intoxication with spending and flabbergasted by the bill from the wine merchant.
There was a time when debt carried a stigma and bankrupts were practically pariahs. Americans lived in what some have called a culture of thrift, their spending constrained not just by modest incomes and frugal social mores but by a variety of thrift-oriented institutions and practices, from local building and loan societies (remember It’s a Wonderful Life?) to hefty down-payment requirements and usury laws that capped the interest rate a lender could charge. A dense web of regulations kept banking simple, sleepy, and modestly profitable.
But the inflation of the seventies and the deregulation of the eighties, along with a rapidly changing society, gradually replaced this culture of thrift with a culture of profligacy, which is especially dangerous for working-class Americans. Barbara Dafoe Whitehead, a scholar whose interests seem to include self-control, writes, “The potential ‘small saver’ has been left behind as prey to new, highly profitable financial institutions: subprime credit card issuers and mortgage brokers, rentto-own merchants, payday lenders, auto title lenders, tax refund lenders, private student-loan companies, franchise tax preparers, check cashing outlets and the state lottery. Once existing on society’s margins, these institutions now constitute a large and aggressively expanding anti-thrift sector that is dragging hundreds of thousands of American consumers into profligacy and over-indebtedness. America now has a two-tier financial institutional system—one catering to the ‘investor class,’ the other to the ‘lottery class.’ ”
Consider the rise of credit cards, financial instruments rivaled only by home equity loans as a way to get ourselves into trouble. Before the crisis, the average American family had thirteen of them, and 40 percent of U.S. households carried a credit card balance, up from just 6 percent in 1970. Credit cards are (usually) extremely profitable for banks, and until the recent near-death experience of the nation’s financial system, credit card come-ons were ubiquitous. When I got a notice from the New York State Department of Motor Vehicles to renew the registration on my car, for example, it came with an ad from Discover, which offered an enticingly low initial interest rate (of zero) and various other blandishments if only I would sign up for a card.
What an egalitarian achievement: reckless overspending became a course open to practically every American, just like reckless investing. Changing attitudes toward debt, the end of usury laws, increasing paper wealth from rising stock and home prices, and stagnant incomes for many Americans all played a role. By the time of the crash, only 24 percent of Americans were debt free, compared with 42 percent half a century earlier.
While there are many culprits in the resulting financial crisis, it clearly represents a colossal failure of self-control, and by saying so I do not mean to exonerate the rich and powerful, who certainly behaved recklessly. John Mack, chairman of Morgan Stanley, even admitted publicly, “We cannot control ourselves.” But neither do I mean to excuse the working- and middle-class families who, encouraged by profit seekers of every stripe, piled loan upon mortgage upon credit card and apparently never gave a thought to the morrow. And when it was all over—when it all came crashing horribly down, as it inevitably had to—people blamed the banks for lending them all that money, and the government for allowing the banks to do so. Where, we wailed, were the grown-ups? More to the point, where is Pogo when we need him to remind us that, “We have met the enemy and he is us.”