Stardust, there are maitrix of reasons why macro economic and related social changes take place. I highlight only two significant ones. I assure you that the money made by lenders is not the issue, while the role of availability of debt and how the availabilty of debt effects perceived collateral asset value is a significant factor on why and how things changed; it is integral in the process of inflation...but that is not becuase lenders make money...they make money becuase they supply credit when it is demanded....and they don't always make money. Just to highlight other issues that sound in the general thoughts of this thread...consider how inflation changed the idea of what a house was useful for....how did tax changes on real estate gain effect behavior with regard to investment in housing? Consider the effect of changes in land use laws in the cost of housing and consider how the increased cost of lots drives the decision on what sort of house to build. Consider the regulatory burden on the cost of a new house compared to what it was in the 1950's...almost 30% of housing cost is driven by change in building codes, land use regulation, environmental regulation, septic, well and energy system regulations. Basic house material costs have not gone up that much (and new materials and methods of assembly have arguably reduced the cost of the 'stick and brick' cost of the house...what has gone up is the cost of the 'right to build' and the cost of 'approved lots'...this in turn has driven larger house sizes that are comensurate, and profitable to produce considering the cost of the land. All of this was supported by a culture of inflation and tax subsidy that mislead middle class investors into thinking that housing was an asset suitable for thier savings investment, so they leveraged up in the acquisition of the largest house they could qualify to own...in the hopes of achieving appreciation. Housing debt was specifically subsidized by the tax code; as was capital gains from housing appreciation. The demand for housing leverage pushed up home prices and financial invovation to provide that leverage...all of these issues and others not mentioned were at play. People held their houses as savings acounts where they could use homequity financing to make untaxed withdrawals to fund education and where the eventual sale with no capital gains tax would provide the basis for retirement...problem was that the idea that a house was an asset was a lie. Or, consider in the case of 'Women at Work'...the ivention of the birth control pill...hardly a tax issue but nonetheless a significant factor in the change of the charactor and form of family life and culture. Do you think that the aggregate move of women out of the home may have had some impact on the quality of education and care of children? Again all these economic, technological and cultural factors interact in a complicated maitrix with multiple feed exogenous feed back mechanisms that are incredibley complicated and only understood after the fact as 'unforseen consequences'. This is probably the same as it ever was with regard to change and the march of history.
I've come a long way in a short time since I first advocated lowering taxes to stimulate consumption. Although I am a conservative, I was still looking for something the government could do to turn things around. Nothing will change until people change, and there is nothing good the government can do to make that happen. TV is all about government and the stuff you can buy, and everybody wants to be involved and talk about what's on TV. The funny thing is, if everybody started saving to buy assets, all you wold hear on TV is how horrible it is because people are not consuming and are so scared they are just hoarding their cash.
So oldtime, how do you think TV makes money...or used to anyway? They mostly sell adds for stuff you buy...maybe a couple of shows are trying to sell you investment services, but not many...and you should beware those shows they are run by idiots. Why do watch television for news?...the news on TV sucks...you should use the internet. It is better to watch 'Mad Men' rather than be at the effect of mad men. I have a lake retreat that doesn't have internet, television or a phone (I do take my Iphone though...but its use is much attenuated)...its a place that favors reading and watching selected dvds.
I raised three kids (all honor students) with no TV. They were very rarely bored, but when they were they read. When I got divorced, I bought a TV. It is now my best friend, and I see how "normal" I would have been if I had been watching it all my life. That's why I got hung up on what the government should do to "fix" the economy, since that's all they argue about and I wanted to be part of that argument.
you just illustrated the point of understanding economics. great post. Regarding peoplee... I think what we can surmise from Ed Breens post is that while morals and backbone of the people must be a factor... govt policies and incentives are another major factor in consumer choices.
Great comments. Just to clarify what I meant. Bank profits are not an issue. The issue is just what the purpose of interest is, in a fiat money system. I contend, that in theory, in fractional reserve systems, money (or as we might like to call it debt) created is (in theory) reversible and legit. But interest paid has no tie whatsoever to the fiat money. It is fiddled with all the time by governments. If all the money were reversed back to zero, there would remain all that interest created money. There is no negative interest rate by definition. So I call that a tax on assets that ends up (in a finite money supply) draining constant wealth into the hands of those that lend and earn interest. It is why the bankers don't care about politics, but only who controls that money supply and ultimately gets that constant wealth stream. ... I thought that your comment on inflation was excellent. It got me thinking. I suppose one problem was the inflated asset prices and carrying of debt made people feel richer that they really were. That drove consumption wild, making everyone on the average a little less wealthy in reality but asset rich on paper. Inflation is a tax. Taxes reduce the wealth of people who may not account for it in their purchases. They could actually be poorer but spend as if they were richer. Add to that the tax bracket creep of taxation and the bizarre tax on inflation called capital gains that you point out. This also could make people feel richer but actually be poorer. Now the bills are due and we are haggling over who gets to pay.
The natural order of things is to over-consume and over-leverage - it's built into the evolutionary process. Asking "why" this sort of thing happens is like asking why an apple falls to the ground instead of floats to the sky.