March 31, 2011
Short Term Gain, Long
Term Pain
By Ron Robins, Founder & Analyst
Unacknowledged as key causes of
most developed countries’ growing and unsustainable debt
is their citizens’ lack of happiness and well being.
This induces people to seek immediate comfort in
material goods, drugs, and activities and lifestyles
that eventually cause them, and their societies, great
harm, ill health, and massive debt!
After decades of study, Robert E. Lane, the Eugene Meyer
Professor Emeritus of Political Science, at Yale
University in the US, found that it is a lack of
happiness and well being that is eating away the moral
fibre of the populations in advanced market democracies.
In Professor Lane’s seminal book, Loss of Happiness in
Market Democracies, he writes, “amidst the
satisfaction people feel with their material progress,
there is a spirit of unhappiness and depression haunting
advanced market democracies throughout the world, a
spirit that mocks the idea that markets maximise
well-being and the eighteenth-century promise of a right
to the pursuit of happiness under benign governments of
peoples choosing.”
Continuing, “the haunting spirit is manifold: a
postwar decline in the United States in people who
report themselves happy, a rising tide in all advanced
societies of clinical depression and dysphoria [anxiety,
malaise], especially among the young; increasing
distrust of each other and of political and other
institutions, declining belief that the lot of the
average man is getting better, a tragic erosion of
family solidarity and community integration together
with an apparent decline in warm, intimate relations
among friends.”
It is these conditions which Professor Lane observes
that give rise to individuals seeking immediate comfort
anyway they can. Hence, most developed countries’
populations gravitate to instant solutions that might
ameliorate their lack of happiness and anxieties. This,
no matter the long term monetary, psychological, or
physical consequences and costs to themselves or
society. Professor Lane believes it is imperative for
western democracies to give the highest priority to
improving the happiness and well being of its
individuals. And this means their focus should be on
human psychological health and relationships—not about
income levels.
By looking for hedonistic joys in the present, many
developed countries’ individuals seek excessive material
consumption which then creates unsustainable levels of
consumer debt. In the US, though to a lesser degree in
other developed countries, consumer debt has grown far
faster than individual earnings gains over the past
several decades. Despite a respite in consumer debt
growth during the past two years, signs are emerging
that US consumer debt might well begin to outpace actual
earnings gains again in 2011, thereby creating
conditions for yet another future financial crisis.
Also, and again much ignored in the debate concerning
debt, are other individual behaviours that induce it.
For example, to provide a modicum of happiness and to
make life more bearable, people in America (and in many
developed countries) consume drugs (legally and
illegally) in extraordinary amounts. These
drugs—alcoholic beverages, marijuana, cocaine,
cigarettes, prescribed and non-prescribed medications,
etc.—often create dependencies that impair health, brain
and psychological functioning. These dependencies then
lead to greater crime to support drug habits, increase
prison populations and criminal/legal costs, raise the
number of accidents everywhere, and encourage unhealthy
lifestyles that in turn produce epidemics of obesity,
diabetes, heart disease and all manner of health
problems.
Americans spend more on healthcare, by far, than anyone
else. In 2009, according to the Centers of Medicare and
Medicaid Services, Americans spent $8,086 per person on
healthcare, equal to 17.6 per cent of their economic
output or gross domestic product (GDP). And such
expenditures continue spiralling 4 to 10 per cent a
year, far faster than GDP itself. Thereby they add
inexorably to future unfunded US federal government
medical liabilities that Boston University’s Professor
Laurence Kotlikoff believes is about $125 trillion over
an infinite timeframe. To fund that liability would
require every man, woman and child in America to pay
about $407,000 to the US federal treasury!
And among public companies a short term focus on near
term profits that potentially create longer term costs
and debt has been endemic. Consider this 2001 quote by
Maryann Keller on the US automobile industry. In Forbes
magazine, she said, “[That] Chrysler, GM and Ford
spent billions of dollars to buy their stock in the open
market… It was always obvious that product spending
[developing new autos] was being sacrificed to provide
trading liquidity [ease of selling stock] for big
investors while boosting earnings per share. GM, Ford
and the Chrysler Group today [in 2001] find themselves
with growing gaps in their product portfolios as they
lose market share…”
Thus, the US automobile industry preferred to spend
profits on supporting their near term stock prices
rather than developing new products for longer term
profits. By 2009 all but Ford were bankrupt. After
losing tens of thousands of jobs and engaging in a
massive automobile industry restructuring program, the
US government bailed out the industry (for now?) at a
cost of about $85 billion. (Canadian governments also
supported GM and Chrysler to the tune of $13.5bn CAD.)
Total societal US debt (private, corporate and
government) is now likely to continue moving higher
again as consumers are forever encouraged to spend now
while saving is discouraged due to artificially mandated
low rates. Increasing employment, though welcome, is not
likely the answer to mounting unsustainable societal
debt. In fact, it might well exacerbate it if former
long term trends of debt growth outpacing income gains
continue.
The US, like most other developed countries, is on a
path to increased human suffering and tragic financial
circumstances unless it deals with the fundamental
issue: enabling individuals and families to become
intrinsically happier and experience feelings of greater
well being. Only then can the compulsion towards short
term thinking and gratification—which builds huge
unsustainable long term debt—be stopped.
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