Materialistic individualism is undoing us

I recently read Michael Lewis' enlightening and sobering article California and Bust in the November issue of Vanity Fair. He explores the financial crisis facing many communities, triggered as the Federal and state governments "solve" their financial woes by cutting expenditures and leaving the shortfall with the cities and towns. While this isn't fair, the cities and towns are not blameless, having made unsustainable financial commitments to their public sector employees over the decades.

Lewis portrays dire situations in San Jose and Vallejo, California, that are similar to the events in Wisconsin and Ohio and Rhode Island and Alabama and who knows how many other states and cities. The financial calamity began with the implosion of the housing bubble that froze the liquidity of the capital markets and created record and prolonged unemployment. Tax revenues are down while the costs of the social safety net are up, yielding unconstitutional deficits for the states and municipalities.

To eliminate deficits, you either cut expenditures, raise taxes on those who still have revenue to contribute, or blend the two. This dichotomy has become the ideological argument cementing the gridlock in Congress.

Looking beyond the political drama that fills the cable programs, Lewis points to the deeper cultural and moral issue exposed by the recession:

Americans knew exactly what they wanted to do, from the top of the society to the bottom. They’d been conditioned to grab as much as they could, without thinking about the long-term consequences. Afterward, the people on Wall Street would privately bemoan the low morals of the American people who walked away from their subprime loans, and the American people would express outrage at the Wall Street people who paid themselves a fortune to design the bad loans.

During my lifetime, I've observed that the rugged individualism that forged America has shifted to a materialistic individualism, exemplified by the sardonic bumper sticker: He who dies with the most toys wins. (Contrast that with Jesus' admonition: It is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God. Matthew 19:23-24.)

The purpose of life in our consumer culture seems to be to amass as much wealth as possible and use it to acquire as much as we can. In addition to breeding entitlement and narcissism, materialistic individualism leads to conflict and traumatic pain when the economic system can no longer support the largess.

So airlines go bankrupt, and pilots lose their pensions. Retiree health care costs make the price of a new car noncompetitive  Pensions and benefits for public sector employees command an unsustainable share of tax revenues. Health insurance co-pays and deductibles rise year after year.

Amid the frustration and fear of an impending train wreck, the Tea Party emerged, finding government the root of the problem. Occupy Wall Street blames the wealthiest Americans — the so-called 1%. The rights of collective bargaining and tenure for teachers are challenged.  Economists argue for increasing the retirement age, an idea no politician will endorse.

These events are the collective result of our individual beliefs and actions. We are too focused on our personal desires, not considering the larger society we live in and unwilling to sacrifice our interests for the common good. We keep reaching for more and feeling justified — entitled — to do so. As Michael Lewis aptly diagnoses, the problem isn't just them, it's us.

Should the US Government help the struggling auto industry?

Last week the CEOs of the Big 3 auto makers testified before Congress, asking for government funding to save their companies. Unconvinced, Congress told them to explain, by December 2, how any government money will be used.

The Bush administration remains opposed to using any of the $700-billion in Federal funding already approved to address the credit crisis. Treasury Secretary Henry Paulson said that would not lead to the necessary changes to sustain the industry for the long term. However, he also stated that bankruptcy would not be good, especially with the economy in recession.

Perhaps unfairly, US auto makers seem to be the poster children for an industry that has not served the market very well. The Japanese pioneered small, fuel-efficient vehicles in the 1970s and 80s and, more recently, hybrids. However, to give the US car makers some credit, they did invent the minivan and were satisfying the considerable demand for SUVs and Hummers until gas prices rose to $4 a gallon. Unfortunately, the industry was vulnerable: overly dependent on these large, gas-guzzling vehicles without the ability to respond quickly to changes in market demand.

Now the US industry is reeling. Sales are off dramatically. Auto makers are losing money and burning cash at an unsustainable rate. GM's stock price has cratered to just a tenth of its value a year ago.

In his testimony before Congress last week, Rick Wagoner, the CEO of GM, argued that GM has taken the steps to position the company for long-term success. He wants government funding as a bridge to weather the current recession, claiming per-capital auto sales are the lowest since World War II. He also stated that if the industry fails, 3-million jobs representing $150-billion in people’s incomes will be lost in the first year.

Should the US Government help the struggling auto industry?

My initial reaction was “no.” In our capitalist system, companies compete to identify the market’s needs and develop products and services that offer the best value. Those that do, win our business. Those that don’t are usually not as profitable and are often acquired or may even fail as the market matures or the economy dips into recession. That’s just the life cycle of companies.  We may be at the point where the US can’t support the number of companies that are manufacturing cars. So why not let the market take its course, even if the Big 3 shrink to one or two survisors?

However, my free-market view is tempered a bit by the argument that these companies are too big to fail. I’ve heard that five people support every auto employee. You have the suppliers, dealers, transportation companies, and financing firms that are directly involved in the production and sale of cars, as well as the barbers and grocers and waitresses and doctors who serve those who work in the industry.

 
If we’re risking entire communities being impacted by any of these companies going under, then I wonder if there’s not a more humane and graceful way to deal with this crisis: a bankruptcy that would allow GM, Chrysler, or Ford to keep operating while restructuring. That’s what happened in the airline industry after 9-11: Delta, United, and US Airways kept flying.

 
Given the frozen credit markets today, GM, Chrysler, or Ford may not be able to secure private financing to carry them through bankruptcy reorganization. That’s where Government funding would be appropriate, to allow them to keep operating while building a bridge to the future. However, I would not feel comfortable with the Government simply handing over $25-billion with no defined expectations or accountability.

That’s probably not going to happen, though. More likely, the Congress will want to become too involved in the operation and strategy of these companies, which I equally oppose.

One last suggestion: The next time the Big 3 CEOs come to Washington, they should drive all night from Detroit in their most fuel-efficient vehicles, rather than flying in their respective corporate jets. That will play much better to the nation’s current mood of populism and sacrifice.