American Consumerism is Behind the Credit Crunch
Wikipedia defines the "Protestant Work Ethic" as follows:
The Protestant work ethic, sometimes called the Puritan work ethic, is a Calvinist value emphasizing the necessity of constant labor in a person's calling as a sign of personal salvation. Protestants beginning with Martin Luther had reconceptualised work as a duty in the world for the benefit of the individual and society as a whole. The Catholic idea of good works was transformed into an obligation to work diligently as a sign of grace.
Now, it doesn't take an economist to realize that an assiduous application of this ethic should lead, beyond salvation to the individual worker, to a period of financial prosperity in any community in which the majority of its members have adopted the ethic and practice it diligently. In fact, the same Wikipedia aticle goes on to say:
The term was first coined by Max Weber, the “youngest” of the German Historical School of economics, in his The Protestant Ethic and the Spirit of Capitalism. The Protestant work ethic is often credited with helping to define the societies of Northern Europe and other Protestant countries where Protestantism was strong, such as in Scandinavia, northern Germany, the United Kingdom and the United States of America. In such societies it is regarded by many observers as one of the cornerstones of national prosperity. This stereotype would say that people in countries with Protestant roots tend to be more materialistic, perfectionist, and more focused on work, compared to people in many Catholic countries, such as Spain, Italy and France where the people had a more relaxed attitude towards work, and were less materialistic, which raises the question on how right Protestant cultures were in equating work and corporate work, with the spirit.
The corollary to this is that in order to retain its prosperity, a nation must always foster in its citizens a belief in Christianity in general and Protestantism in particular. If secularization should occur in a "Protestant" country, there is always the danger that its people, no longer mindful of salvation, will slacken off for lack of a tangible goal. Hence, in the United States, there's the eternal emphasis on "Christian values."
A capitalist society cannot help, though, to secularize as it replaces in the national consciousness the concepts of blessing and sin with those of profit and loss. A capitalist country must therefore always provide an alternative goal -- this time, material in nature -- to encourage its population to labor as streuously as possible. In America, this expresses itself in the idea of the "American Dream." The Dream is sold to us every minute of the day through every available medium. It's the huge house with the two-car garage and white picket fence. Put simply, the Dream screams at Americans to get rich by putting in so many hours at the job that there's no life left outside work; then, with the wealth one acquires through this sacrifice, one can keep the American economy going by spending all his or her earnings on material comforts that may or may not be needed.
Consumerism is thus central to the American way of life. And, up to recently, the concept worked extremely well and made the United States the richest nation on earth. By working more, everyone had more to spend. This increased spending, in turn, led to corporate growth and a boom economy.
The invention of credit cards was a further refinement of consumerism. Now the hard working people could spend even before they'd gotten their paychecks. By buying on time, the consumer not only was buying products but he was paying a surcharge to the financial industry which used the income to increase the amounts it had available to businesses to expand their operations. Though the individual consumer might working himself to death to escape a crushing burden of debt, society itself benefited from his self-inflicted sacrifice.
It was this access to credit that led to the disaster America now faces. Up until the turn of the millennium, credit was held in check by the obvious fact that it had to be paid back. To default and go into bankruptcy was to forfeit the American Dream one had worked so hard to achieve. To take the work ethic back to its roots, it was to risk losing (material) salvation.
The rise in housing prices was what finally undermined the work ethic and transformed consumerism into a nighmare run wild. Consumers suddenly saw their net worths rise astronomically as the value of their homes soared beyond all reasonable expectation. To pay off all their credit debt, all consumers now had to do was to refinance. That, of course, led to still greater debt, but this was offset not only by lower interest rates but also by housing's continued boom. Here was the break in the chain -- consumers no longer had to work hard in order to spend hard. Indoctrinated as they had been all their lives, consumers used easily available credit to put themselves more deeply in debt than they would ever be able to repay. At the same time, the value of housing not only declined, it collapsed.
In conclusion, the subprime problem is bottomless because it is in no way limited to those with poor credit. From 2001 to 2006, individuals on ever credit level exploited the increase in housing value to put themselves more deeply in debt than ever before. Even as Americans today continue to spend wildly on credit, the number of defaults, bankruptcies and foreclosures increases geometrically. America may at last be forced into a deep recession by unbridled spending and debt.
