Richard Florida
by Richard Florida
Sat Oct 4th 2008 at 8:55am UTC

I Purchase, Therefore I Am

My new Globe and Mail column is out.

Individual identity vs. the financial crisis

Most experts agree this is the worst financial meltdown since the Great Depression. The stock market is down almost 25 percent so far this year. Housing prices in the United States are off more than 20 per cent since their peak in 2006. Manufacturing output is falling and consumer confidence has slipped.

Martin Feldstein, former head of the National Bureau of Economic Research, past chairman of the Council of Economic Advisers and a Harvard economics professor – usually a voice of calming reassurance – wrote in The Wall Street Journal: “Sliding into recession, monetary policy already at maximum easing, and fiscal transfers impotent … an unenviable situation, to say the least, for any incoming president.”

All of this raises two fundamental questions: Where did this financial mess come from? And what does it mean?

The easy answer is to blame the housing market. People took out adjustable-rate mortgages and subprime loans offered with no down payment and easy terms by mortgage brokers who then resold them as securities. As the housing market has weakened and loans have reset, a growing number cannot repay and many more owe more on their mortgages than their homes are worth. Banks and financial institutions, so the story goes, are clogged with this bad debt, now dubbed toxic waste. This is the kind of thinking behind the U.S. financial bailout: Remove the toxicity and all will magically be well again.

The real reason is that the roots of the current crisis are tied to the fundamental nature of the postwar model of economic development called “Fordism.” That model drew a tight connection between assembly-line mass production and mass consumption – ultimately fueled by massive suburbanization.

After introducing the assembly line and making car production more efficient and cars cheaper, Henry Ford realized that a bigger market for his cars was needed – so he boosted workers’ wages by introducing the “five-dollar day.” But even that was not enough, and so North America and the world lapsed into the Great Depression.

Fordism emerged as a full-blown economic and social model during the 1930s, marked by president Franklin D. Roosevelt’s New Deal programs, and flourished after the Second World War, when government policies brought about the rise of longer-term mortgages and a new system organized under the now infamous Fannie Mae to purchase those mortgages and thus lubricate the system.

Add to that massive tax breaks for homeownership and gargantuan subsidies for highway construction and infrastructure, and a whole new model of suburban-fueled mass consumption was born – family after family purchased new homes, filling them with TVs, appliances and all manner of furnishings, while also purchasing record numbers of cars to get to and from work.

While Fordism looks stable on the surface, it suffers from a fatal flaw: It’s impossible for consumption to keep up with the ever-growing pace and efficiency of production. This is particularly true of recent times, when a great deal of production has been sent to China, India and other places where labour is cheaper. It’s hard for the working and middle classes to consume more when their wages are essentially stagnant. Low-wage workers in emerging economies do not have the income to fill the gap. And while the ranks of the rich have grown, the wealthy are a relatively small group that can buy only so many luxury cars, designer products, homes and yachts.

That’s where credit comes in. Those new fancy mortgage instruments were meant to turn homes into veritable “piggy banks” that could be used to finance bigger and better cars and homes and toys.

Almost a century ago, Austrian economist Rudolf Hilferding identified this basic contradiction of modern capitalism in his monumental work Finance Capital. Capitalist economic development stands on a shaky foundation, he argued – workers always produce more than they can consume, more even than society as a whole can consume.

As one leading blogger, Yves Smith at Naked Capitalism, recently put it: “Since consumption has come to depend on growth in indebtedness, a reversal, however painful, is necessary. Our excesses have been so great that there is no way out of this that does not lead to a general fall in living standards.”

There you have it. The financial crisis is in reality a much deeper crisis of our underlying economic model and our way of life. It’s a crisis of the way we have come to define ourselves.

If Fordist mass consumption had a catchphrase, it was “Keeping up with the Joneses” – and in the past decade it became a fearsome standard. So many of us came to define ourselves not through our work or creative endeavors, but through what we could purchase. We were fooled into believing that our identity and self-worth somehow depended on acquiring expensive or impressive belongings – much of it on credit.

Regardless of how or when the financial markets are restored, credit will be much harder to get – the age of the house as piggy bank is long gone.

How will we define ourselves when we can’t get a quick self-defining “makeover” at the dealership, the electronics store or the mall? How will we rebuild our way of life and our very identity? Those are the questions that many of us, and our society as a whole, will be confronting long after the financial markets have been restored.

14 Responses to “I Purchase, Therefore I Am”

  1. Wendy Waters Says:


    Do you think that the service economy, broadly defined, has replaced Fordism?

    For example, at the consumer level, people are looking to purchase experiences rather than necessarily things. This may be particularly true of people who live in smaller homes and condominiums in dense urban environments. Nail salons, spas, fitness centres, night clubs, a $5 latte, etc. are all experiences one can purchase in the city that do not take up room in your apartment.

    It’s still about consuming, but not about consuming durable and non durable goods. I’m not sure such a shift would solve the negative savings challenge, however.

    I’d be curious as to your thoughts on this.

  2. Kwende Kefentse Says:

    Hey Wendy (and Richard):

    I’ve been trying to work that question of industrial vs. intellectual/fordist vs. service for a little bit now. I’d also be interested in some kind of exchange on the matter. On my end, I like to think about the effect that Fordism and the wholesale buy-in on that philosophy had on the physical landscape of the continent. Do we have fordist environments at odds with shifting demands upon that environment?

  3. Yule Heibel Says:

    Excellent post, Richard, thanks for this. It also made me think of Wendy Waters’ recent entry on how the bailout is meant to prop up the suburbs (see See also, if you’re interested, the video “Blood and Oil” and commentary about it on FriendFeed (here:, which explains how the Gulf Coast refineries destroyed wetlands — again, the oil/ gasoline connection — and the victim in this case was a real city, New Orleans (which still hasn’t been rebuilt).

    In addition, though, Wendy poses a great question, above — which also again points to the “suburban” / systemic quality of what looks like a “made in America” (but increasingly global) crisis…

    It just occurred to me that our often inhospitable climate in Canada, which has created a development pattern where almost all of us cling to a narrow southern band close to the 49th parallel, with pockets of concentration in cities (80% of Canadians), might actually contribute to saving us at least a little bit from the worst of this meltdown. As in: we didn’t build suburbs quite as big and extensive and vastly spread out, ’cause it would have been too scary out in the tundra or amidst the snow drifts?

    But then again, that’s probably just wishful thinking, a rationalization of living with snow and ice… ;-)

  4. Yule Heibel Says:

    @Kwende Kefentse: we were posting at the same time, but seeing your question now makes me think that maybe it is valid to look at Canada’s geography and climate as a constraint on suburbanization/ development, and an affordance of some kind of urbanization, which in turn does affect how a bankrupting of Fordism plays out.

  5. Daniel Carins Says:

    Every morning on public radio here in the UK, there’s a short slot called “thought for the day” ( It’s usually presented by a religious commentator, and last week I heard one by the chief Rabbi in England. His closing statement was “the age of greed is over, could this be the dawn of a new age of responsibility?”.

    I’m hoping that with credit becoming more scarce, investments losing value, and public eager to blame “spiv” culture, that maybe people will seek to define themselves more along ideological grounds, class grounds, family and community ties, and …. personality rather than consumption, celebrity worship, bling, and social atomisation. There are already some inklings of a renewed interest in talking and ideas demonstrated perhaps by increased number of reading groups and rising sales of news weeklies, coupled with declining sales of “lad mags” and attendance at football (that’s soccer to you North Americans) matches. Perhaps. Maybe it’s just my wishful thinking.

  6. Fred Says:

    Ultimately income and expenses (whether for goods or services; whether spent in city or suburbs) will have to balance out. We have been living in denial of that fact by artificially creating “income” through debt. Thirty years ago we could say of deficit spending that we are just borrowing from ourselves – obviously that is no longer true with China, Japan and the oil producing countries owning so much of our debt. Part of the artifical debt created “income” gap is being closed by wiping out the investments of those who were stupid enough to save and live within their means. The remainder will have to be paid off by people consuming less – thus RF’s point of a reduced standard of living is right on.

    Right now we are seeing the visible debt (mortgages, credit cards, gov’t deficits) problems. There is an equally large unrecognized “debt” that has been created by future promises for retirement benefits (public and private)and healthcare that are not being funded by an adequate level of current taxes and corporate contributions to pensions.

    So far the political solution has been to ring up more debt. Any politician telling people they have to save more and pay higher taxes while reducing their consumption has no chance of being elected.

  7. individual identity vs. the financial crisis < what does it mean to be a human being? Says:

    [...] creative class: If Fordist mass consumption had a catchphrase, it was “Keeping up with the Joneses” – and in [...]

  8. Sanford Says:

    It seems to me the current crisis represents the convergence of the environmental crisis (the planet can’t sustain ever increasing consumption levels) and the credit crisis (the economy can’t sustain ever increasing debt levels). The economy and environment are now sending the same warning message. The underlying cause of these crises is the spiritual void in many people’s lives which results in purchases and consumption being used to substitute for their lack of meaning and purpose.

  9. hayden fisher Says:

    Another after-effect: instead of depending upon 401K’s and other sources of passive income for retirement and wealth creation over a many year term, perhaps worker will need to get out of both their suburban houses and their middle management workspaces and create something of value to market to the world. Will we see a return to not only traditional urban living but also traditional shop-keeping where the store exists and the first floor and the shopowner on the 2 floors above it??

    I’m particularly grateful in this time of dire consequences that I never trusted a money market manager or financial adviser or relied on any of their CONVENTIONAL GARBAGE ADVICE about how to create wealth. If you want something, go make it happen. Only a fool would depend entirely on someone else or a 401K. There’s lots of blame to go around on this one, not the least of which is the Mc401-K cookie-cutter model people foolishly relied upon for years. If someone really wants to create or add value, start-up a new business.

    Welcome to the new age of unyielding entrepreneurism!!

  10. hayden fisher Says:

    …as a corollary to the above, we could say good-bye to the publicly traded company model very soon. Why would we expect a CEO to care about a company he doesn’t own (except by options). We don’t expect renters to care for their houses and apartments as much as the owner-occupiers do.

    …the publicly traded company is a socialistic top-to-bottom being, where have all the so-called pure market capitalists been to cast stones at these ill-conceived entities??

  11. Fred Says:

    Hayden asks, “Will we see a return to not only traditional urban living but also traditional shop-keeping where the store exists and the first floor and the shopowner on the 2 floors above it?? ”

    I just returned from 2 1/2 weeks in Tuscany. Walking around the medieval centers but out of the car free zones (full of high end mostly chain retail) I found numerous examples of workers creating / repairing furniture, musical instruments, shoes, clothing on ground floor levels of buildings they may well have also lived in on the upper floors.

  12. CR Says:

    Sorry, I’m confused if no one buys, wouldn’t production stop?

  13. hayden fisher Says:

    …there will always be buyers for good products

  14. Zoe B Says:

    Our economic dependance on growth goes far beyond ‘Fordism’.

    In the local governmental sphere, the costs of public services and maintenance of infrastructure often are not entirely paid by taxes on current residents – they are dependent upon development fees, and increased future revenue from the new developments. If development stops, the budget crashes.

    In the Social Security system, current workers pay directly for the support of current retirees. As retirees live longer, and as the ratio of retirees to workers increases, the system depends upon either 1)increased income of current workers (presumably due to increased productivity), or 2)increased numbers of workers (immigration, conversion of non-earners such as stay-at-home moms into earners, various programs to stimulate the native birthrate…).

    In the real estate market we basically believe that the current market correction for overvaluation of housing eventually will end, and then the value of our homes again will appreciate during our lifetimes. We believe this even after accounting for maintenance and renovation expenses. Why should it be so? It depends upon: 1)future increases in numbers of households needing housing; 2)future increases in wealth that support the existence of smaller households and/or a greater square footage per person; and/or 3)belief that increased urban density or other dimensions of economic growth will raise the value of a given location.

    The American Dream posits that our children will be wealthier than us. You don’t have to measure wealth as increased physical standard of living. It also can be: education, health, life choices, number of cable channels, information, human rights, moral enlightenment, computing capacity, jobs that fit our individual strengths and preferences….

    We also believe that we will solve our problems through increased levels of education, technology, accumulated knowledge, tolerance and creativity.

    Belief in growth is everywhere in our culture. Let’s not just blame Mr. Ford.