These days Bernie Madoff makes an appearance on the cover (or at least the inside fold) of the paper with alarming frequency and investors far from South Florida are feeling the repercussions not only of his very literal Ponzi scheme but also facing a growing realization that our booming residential and stock markets were also houses of cards. The housing market, however, lacks a gray-coiffed figurehead upon which to pile indignation. Cases could (and have) been made for names like Bliley, Bush, Clinton, Dodd, Frank, Gramm, and Leach, but no one name stands out above the rest and such a politically-centric list neglects all of the actual bankers that wrote the loans, the regulators who ignored the signals, and the buyers themselves. Instead, it appears that the housing bubble was more like a game of musical chairs than corporate malfeasance since so many were playing. As someone who has been renting for the last ten years because home prices in NYC have been ridiculously inflated, I can't say I was surprised by the housing market collapse, but what I didn't realize was that my own well-being was so intertwined with the housing market. Americans, and to a lesser extent the rest of the world, were paying for their purchases by borrowing against their homes, and America was financing its current account by borrowing against its currency. We, as industrial designers, were the makers of all of the products that were being bought, and now the pinch is on us as well. By no means am I the first person to say in hindsight that the economic collapse seems obvious. Indeed, my savings were damaged as much as any homeowner's by the collapse of the stock market, but I didn't realize the extent of my personal idiocy until I read Thomas Friedman's sage opinion piece in the New York Times and realized that I hadn't only seen the current recession in hindsight, I'd passionately argued against its very causes right here in this blog nearly a year ago.
Americans, and to a lesser extent the rest of the world, were paying for their purchases by borrowing against their homes, and America was financing its current account by borrowing against its currency. We, as industrial designers, were the makers of all of the products that were being bought, and now the pinch is on us as well.
Friedman talks explicitly about the Western model of growth, explaining how it violates pretty much every tenet of sustainability. When every paper talks about growth, they mean growth in the dollar value sticker price (and that's an important detail) of the things we produce and buy. He cites that other paper of record, "The Onion," in an even more sage satirical article on the plight of a Chinese worker who can't believe the "sheer amount of shit Americans will buy." We designers make that, um, stuff. And we campaign for "sustainability" at the same time. It's not a watershed observation to note that these two impulses are in conflict with one another. While superficially this recession appears to be about unscrupulous lenders or Warren Buffet's quip to "beware of geeks bearing formulas" that foresaw the collapse of the credit derivatives market, both of those immediate financial problems were connected to a far deeper pyramid scheme. Friedman eloquently connects the current economic collapse with our planet's looming ecological catastrophe. Instead of having future investors pay for our economic returns, we're asking future generations pay for our environmental profligacy. I'm truly happy that he's stating it in a venue as public as the New York Times, but this is very bad news folks.
If our response to our environmental debts is anything like our response to the current recession, we can be reasonably sure not only that the market will seek to correct it, but also that the response will come late, painfully, and with warnings that are only obvious in retrospect.
For those of us unaware (that is to say most of us) how credit derivatives and leverage work, its important to note that the way that Ponzi schemes and bubbles operate is that they're predicated upon themselves. Derivatives are financial instruments whose value fluctuates based upon the underlying asset they are derived from. When shares of XYZ Company go up, the value of a long call derivative on it will rise more (on a percentage basis) than the underlying asset did. When an insurance company strolls through a particularly placid hurricane season, it fares better than any particular home does. Further, leverage (borrowing debt to finance your company) amplifies swings in your profits because the rate at which money is borrowed is often less than the rate of return in the business itself, so your equity holdings return greater profits. This self-amplifying system works quite well as long as business trends upward, but when one factor runs counter to the existing trends the whole house of cards collapses. The housing market (also levered) was a true bubble. House prices rose in part because credit was easy and everybody thought that house prices would keep rising. Where it gets ugly is that houses (unlike another "popular madness," the Dutch Tulip mania) are big ticket items and are inherently levered. When times were good, that meant that they performed very well, but now that they've turned, their leverage will pull them down even faster than they went up. Unlike houses, particularly astute readers may note that the call and put option markets are dependent on the underlying asset, but the underlying asset isn't directly influenced by them (as would it would be in a true bubble). I concur, but what's profoundly, terribly different about this recession is that indirect connections persist everywhere. Because of global interconnectivity, everything is predicated on everything. If derivative investors profit disproportionately when prices go up, they (or their co-workers) usually invest those proceeds back into the same market, causing it to rise further. If consumers own stocks while buying the same products that contribute to stock growth with those profits (or worse, take on debt to finance their purchases because they think their paper wealth is real), our current economic system begins to share an alarming number of critical features with the Dutch tulip craze, only with a totally Byzantine paper trail.
That seems like a heady financial digression for a product design piece, but we're part of that system, and as Friedman observed, the same rules that apply to atmospheric carbon apply to the financial system. Friedman quotes Joe Rohm as saying "You can get this burst of wealth that we have created from this rapacious behavior, but it has to collapse, unless adults stand up and say, "This is a Ponzi scheme." Despite the current financial crisis, I should note that Rohm's actually talking about the environment. Our government is having a bear of a time resolving our financial crisis, but as Glen Prickett observes, "Mother Nature doesn't do bailouts." Again, this is scary stuff.
While I hesitate to offer political advice, it does seem relatively clear that our current economic tools aren't working to improve our traditional economic metrics. In part, my answer is, "good." Our society has been running at a fever pace, and the policymakers' decisions are to panic and try to force the fever even higher? What we've seen generally (and are seeing again) is that the blue team enacts a set of pro-active laws that push businesses in unpredictable economic directions (Clinton, Bush, Dodd, Frank, and now Obama) while the red team removes the legal safeguards that protect the public from the very same businesses (Gramm, Leach, Bliley, Bush, and many more). Stick these two things together and you have a system that sets private entities on the wrong paths and then incentives them in ways that amplify their errors. This is as bad for the economy as it is for the environment. Simply put, government should not try to make business decisions for private entities and business should not try to influence the legal decisions of government. Instead, business should allocate capital without breaking the law and government should safeguard the public good by enacting laws. Sadly in response to the current crisis, each party tries to compensate for the errors of the other by demanding to make its own errors even more loudly. Perhaps we are beginning to notice that this doesn't work. The answer may be that the best way to weather the current crisis is to stop looking at it in traditional terms.
Any designer focused on producing useless doodads to be made in China, hawked to geriatric couch surfers on QVC, financed with second lien mortgages, denominated in a rapidly devaluing currency, propped up by the government of the underpaid Chinese workers who built it, should be rightly terrified.
Designers are truly at the center of this paradigm change. While these are scary times, this is also an opportunity for us to focus on what is real. Any designer focused on producing useless doodads to be made in China, hawked to geriatric couch surfers on QVC, financed with second lien mortgages, denominated in a rapidly devaluing currency, propped up by the government of the underpaid Chinese workers who built it, should be rightly terrified. As Westerners embarked on a new gilded age, buying everything we desired but didn't need, templates for all those purchases passed across a drafting table in front of a designer. Most of these "as seen on TV" products lacked not only any discernible differentiating function but also any trace of human labor, the very characteristics that connote the highest value in design. I understand that we're part of the system and that bills need to be paid, but preventative steps can be taken. To insulate himself/herself from these crazy market forces, designers should be making things that are beautiful. A dedicated craftsperson making immaculate hand-carved tables and selling them to people who plan to keep them for life or keep them in the family would be relatively insulated from the crisis, as long as she practiced what she preached and bought things of lasting value as well.
When the government talks about "winding down" debt positions before Americans start buying again, they're missing the point. Most Westerners don't need to buy much of anything at all. We have "stuff" backlogs as profound as our debt backlog.
And that encapsulates the bitter pill in a nutshell. Mortgage debt is no more sustainable than carbon debt, although they're both caused by the same human foibles and governmental policies. You practice sustainability at work, but you've mortgaged your house to the max? Not sustainable. You eat free-range beef, but you're loaded to the hilt with credit card debt? Not sustainable. You compost in your backyard but you commute an hour and a half to work as solo driver on congested highways? Not sustainable. Am I guilty as charged on more than one similar count? Absolutely. The correct answer to the sustainability question is not "what are you buying?" but instead, "how much are you buying?" Despite my last years relative abstinence at purchasing "stuff" (Full list: one pair of shoes, one pair of jeans, socks, one video game, work supplies: books paper etc, direct digital content like downloads, and finally toiletries and consumables), I still have way too many things. When the government talks about "winding down" debt positions before Americans start buying again, they're missing the point. Most Westerners don't need to buy much of anything at all. We have "stuff" backlogs as profound as our debt backlog. The commonality here is that the major facet of sustainability isn't about buying the "right" crap, it's about not buying crap in the first place.
But there's a problem here: Our whole economy is predicated on volume and growth in volume. Not sustainable! It's tempting to say that there's some economic fix to the recession, but I'm beginning to think even the use of traditional economic tools exacerbates the problem. Should we free up the constricted credit lines by bailing out the banks? Well, maybe if the money goes to creating real value, but chances are that we'll just spend it on the same dumb things we always do.
Historically economic growth comes from two places: Improvements in efficiency and expansion of market. The Western world has improved its manufacturing efficiency steadily since the industrial revolution. Until recently, population growth and globalization provided means for continuous market growth as well. The market, however, is rapidly becoming saturated. How many more TVs does the average Westerner really need? Once the market stops growing (either as population growth slows or the market becomes saturated), growth can only be attained by pushing more products through the channel. Other nations like Russia, China and India have offered fresh vistas for sales, but their futures will eventually merge with ours. Once everybody has most of the things they need, then you have to convince them that the stuff they have isn't good enough. We're remarkably used to this. Maybe the magazine Lucky is a "jumping the shark" point. If our culture has spawned a magazine where the advertisements don't support the content, but are the content, perhaps this material obsession is a little much.
So, faced with a market that is slowing in growth (pretty much inevitable as long as we're stuck on the rock called Earth), what happens as technology continues to improve manufacturing efficiency? We've chosen to own more and more things. But there are other options: A shorter work week to build the same output? Added time to devote to artistry and craft? A proliferation of intangible media and knowledge? Slow and careful rebuilding of city centers in the European mold rather than urban sprawl? Maybe the economic "crisis" isn't such a bad thing.
Our current pyramid scheme will collapse once population growth slows or the environment stops providing raw materials.
Unfortunately our house of cards has been building itself for so long that imagining the other possibilities is anathema to our thinking. As indicated in my earlier essay, it takes collective action, which is difficult for one person to initiate. One possible long term solution would be to switch from high unemployment to partial/underemployment. Keep prices the same, pay people less for less work. People will no longer be able to afford all that they desire, but that's ok. Their grandchildren couldn't afford it anyway. Right now the expectation that stocks, houses and the like will continuously rise is a prerequisite for financial security for our growing army of retirees. As life expectancy increases and the public ponders taking on the burden of national health care and retirement (Social Security and Medicare are both functional pyramid schemes and major contributors to our current debt crisis), I begin to wonder whether retirement is such a great idea. Wouldn't it have been more helpful to keep investment managers who'd been born during the Great Depression around to observe (and warn against) this particular bubble, even if only in an advisory capacity? Shouldn't our elders be revered rather than sequestered?
I recognize these are vast simplifications, but it is a sketch of a possible future. This is important because our current pyramid scheme will collapse once population growth slows or the environment stops providing raw materials. Many people will get rich in the process as it's built up and many will suffer at the end. These things are certain. All that is uncertain is when, or how badly we'd like to avoid that eventuality.
So what's a person to do? The traditional collective answer is to return to business as usual ... stimulate buying to stoke the engines of growth. The pragmatic individual answer is to batten down and save. Collectively, if everyone behaves pragmatically, the results to the society will be catastrophic. Workers and designers will be fired. Factories will close and people will suffer, but it is far better to end the pyramid scheme now than to let it grow.
Here's a formula for designers and managers:
Look at your market to see how many like items are "Produced" in a year. Call this P.
Ask yourself how many of said item an average person actually "Needs." Call this N.
Survey the market to find out how many people "Use" your product. Call this U.
Estimate what the typical "Life" of the product is in years before it breaks. Call this L.
N times U divided by L is replacement purchases per year required to fulfill needs.
Compare P with N*U/L (ratio: P/(N*U/L)).
I can guarantee you that P will be much, much larger than N*U/L. That disparity is the consequence of planned obsolescence and savvy marketing. In the event of a severe economic downturn, people can hold on to the things they own for as long as they'll last ("L") and they can reduce the number they own down to as many as they need ("N"). If we look at Detroit, or the housing market, we'll see this even more profoundly. Compare your business with that of Detroit's. Then compare your business with that of a food manufacturer.
Exercise: Guess which extreme is safer.
For a practicing designer, a maker of stuff, the situation is going to look pretty grim because people need less than they have. If their wealth and income decline because the economy's growth according to traditional metrics is slowing down, the proportion of money spent on food and necessities will increase. Those industries are safe. Most designers, however, make discretionary products. Unfortunately, I can't provide an outlet for how to weather the collapse when it comes, but I can provide a few litmus tests that can be applied to products we manufacture to estimate whether they're the sorts of products that will be purchased in the post-consumerist age.
Examine the thing you're designing right now: Does it fulfill a fundamental human need? If you leave the thing you're designing outdoors, how long will it last before it degrades? If it will last a long time, how long will the user benefit from it? If those two items are wildly different: why? If someone dings or dents it does it look worse, or charming? Can it be easily repaired (hello Apple)? How much usage and real benefit can a person get from the money they spend on what you sell? Will they keep it for life, pass it on to their children, or will they toss it in the heap when something prettier comes along?
Unfortunately, telling designers to simply start building wooden toothbrushes and biodegradable clothing isn't a workable conclusion because the buying public needs to be interested in these things; the transaction takes two parties. I recognize that a stable equilibrium where people make less and buy less would be remarkably difficult to attain. The incentives to "cheat" and produce more would be so strong because companies that made more would benefit from economies of scale that would crush their competition. That obstacle, however, is remarkably similar to the forces that drive companies to pollute, mistreat their labor, and fail to overcome the many collective action problems the world continually faces. Perhaps the forty-hour work-week is just part of human nature, but any emphasis we can place on human effort, time and craft instead of tearing more raw materials out of the ground would do a world of good.
As long as the house of cards stands, self-interested individuals should still play by the rules of the house. That said while we're still pretending the system works, there are plenty of forward-thinking ways to proceed.
While the precise details of how the economy will react when we finally realize that the world actually has limited resources is beyond the scope of a short article, the simple constraints of unlimited growth expectations combined with finite resources should be enough to reach a single inextricable conclusion. This cannot go on forever. In the long term, growth must come from efficiency and innovation, not population growth and planned obsolescence. Technological improvements have and will continue to make for improved living standards, but some day we will need to begin to assess whether continually upgrading to next season's hip item should continue to be perceived as the cool thing to do. Given that, any prudent planner should begin to reallocate resources to provide for that eventuality. As long as the house of cards stands, self-interested individuals should still play by the rules of the house. That said while we're still pretending the system works, there are plenty of forward-thinking ways to proceed.
All of this comes down to two simple rules: Stuff should cost more. We should make less of it.
Make less. Make it better. Focus on craft. Cultivate outstanding and caring service and support. Engineer your products so they can be repaired not only by specialists but by their owners. Become known for quality and reliability. Engender a love of ownership in your customers. Make the ownership experience as intimate as your experience was building it. Forget about growing the bottom line exponentially. Compete on quality not quantity. Don't push your product on people who don't need it. Do one thing and do it well. Pay a dividend to the people who invested in you. Don't let people who aren't involved in building your company get involved in selling it. And when your stock price falls because you're not "growing quickly enough," smile, knowing that you'll be around for a long, long time.
In our throwaway culture, most products don't abide by those rules. People no longer pay for durability. They will. Manufacturers of second rate crap are in trouble in the long term. All of this comes down to two simple rules: Stuff should cost more. We should make less of it.
History is littered with companies who lost track of their core competencies by chasing ever expanding profits. Those are unreasonable expectations. We tend to think in terms of equity and returns, but the small business owner thinks in sweat and satisfaction. Once human beings can discard the dream of ever increasing growth, perhaps eventually we can finally be satisfied with enough.
It seems that the answer, both professionally and politically, is that to conquer this economic meltdown designers and politicians should do anything but try to "fix" the economy using the tools we're rapidly discovering don't work. If our response to our environmental debts is anything like our response to the current recession, we can be reasonably sure not only that the market will seek to correct it, but also that the response will come late, painfully, and with warnings that are only obvious in retrospect. Instead of waiting, perhaps we should fix our definitions of the economy, our definitions of growth, and most importantly our definitions of happiness today. Wouldn't you rather be making beautiful things of lasting value anyway?
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Robert is a NY based industrial designer with an emphasis on industry. He recognizes that this sort of diatribe can come across as preachy and that he's as tired of listening to do-gooders as the next guy, but he's also tired of stock market crashes and misguided policy. Having experimented over the last year not only with limited consumption of stuff, but also of animals, some hard lessons have been learned. To paraphrase a New Yorker cartoon: "At first I became a vegetarian for ethical reasons and then I learned about the health benefits, but now it's mostly to irritate my friends." Environmental or fiscal prudence is no different. Completely changing a lifestyle is shockingly difficult, but moderation is unexpectedly easy. At worst, you'll have a conversation piece, and it's a conversation we all should be having more frequently.