Why Americans are sunk in debt

The average household’s credit card debt: $8,565 (up almost 15 percent from 2000)
Typical interest rate: 19.1 percent (up 1.5 percent since 2005)
Becoming a nation of debtors: priceless

How did this happen?  In three ways, the banking industry has created a debtor nation.  First, by undermining the American value of thrift:

Eliminating negative feelings about indebtedness was the idea behind MasterCard’s “Priceless” campaign, the work of McCann-Erickson Worldwide Advertising, which came out in 1997. “One of the tricks in the credit card business is that people have an inherent guilt with spending,” Jonathan B. Cranin, executive vice president and deputy creative director at the agency, said when the commercials began. “What you want is to have people feel good about their purchases.” 

Thrift is less important, because banks now make the lion's share of their profit on fees and interest, not on repaid debt.  In other words, banks make money when people fail to repay their loans.

 “Today the focus for lenders is not so much on consumer loans being repaid, but on the loan as a perpetual earning asset,”

The lenders set up this system, first by lobbying for weaker lending regulations in 2003 and then by loosening SEC regulations of their investments in 2004.  The lax regulation allowed banks to gamble and lose.  And who pays?  We do, in a government bailout of the failed banks.

While we're paying them for making bad loans, the financial industry keeps the screws on us by pouring their profits into lobbying.  The 2005 bankruptcy law made it harder for Americans to escape from bad debt, such as loans made to people without any hope of repaying.  

Since 2005, when the bankruptcy law was changed, the credit card industry has increased its earnings 25 percent...even though sponsors of the bankruptcy bill promised that consumers would benefit from lower borrowing costs as delinquent borrowers were held more accountable, the cost of borrowing from credit card companies has actually increased anywhere from 5 percent to 17 percent.

Here's a nice year-after look at the impact of the bankruptcy law.  Summary: we got screwed.

Barack Obama plans to reform the 2005 bankruptcy bill to make it easier for consumers to escape bad debt.  You have a chance to make a difference in November.

Consumer secret: it's all about the habits

An anthropologist with a passion for public health was stymied by the challenge of changing hygiene habits in Africa.  But with a little help from the consumer products industry, she's getting folks to soap up their hands and prevent the spread of disease.

The most fascinating?  The tangent into consumer psychology.  Because nearly 45 percent of our daily activity is habitual.

Over the past decade, many companies had perfected the art of creating automatic behaviors — habits — among consumers. These habits have helped companies earn billions of dollars when customers eat snacks, apply lotions and wipe counters almost without thinking, often in response to a carefully designed set of daily cues.

Proctor and Gamble faced a problem with Febreeze.  When marketed as a killer of bad odors, it flopped - people didn't have bad smells around enough to remember to use it.  But they changed their tactics:

The perfect cue, they eventually realized, was the act of cleaning a room, something studies showed their target audience did almost daily. P.& G. produced commercials showing women spraying Febreze on a perfectly made bed and spritzing freshly laundered clothing. The product’s imagery was revamped to incorporate open windows and gusts of fresh wind — an airing that is part of the physical and emotional cleaning ritual.

Thanks to marketing, Americans now spend $650 million a year spraying clean things with Febreze.  And Ghanians have increased their use of soap after a bathroom break by 13 percent. 

For more on how they marketed clean hands, check out the piece.

Every holiday is shopping holiday

I got an email newsletter from a tech company the other day about early Easter shopping for gifts. And this Lifehacker column asks about Valentine's gifts for geeks.

I'm sorry, but do we have any holidays where we do something other than shop?

The Story of Stuff

An insightful, clever video on the cost of consumer society.

The "worth it" moment? For every pound of trash you toss, 70 pounds were created to make that product or packaging.

Damn.

Grout sealer: recall didn't really work

If you're a DIY kind of person and have done tile recently, make sure you don't have any of this stuff. After being recalled, the company was slow to remove it from shelves and then sent a replacement product with the same dangerous chemical.

The story goes on to discuss the failure of oversight from the Consumer Products Safety Commission.

Is it "low cal" or does low saturated fat really get you going?

Ever wonder what nutritional information most appeals to American consumers? From a report to the United Soybean Board on vegetable oil markets, this chart illuminates the pervasiveness of Nutritionism, the American fascination with breaking down food into "goods" and "bads" at the nutrient level.

One price to rule them all

The Supreme Court heard arguments yesterday on a case with dramatic implications for consumers everywhere. At stake is a 100-year-old law that makes it illegal for manufacturers and retailers to collude in setting prices (someone should explain that to Apple), and a decision to overturn the law could mean prices everywhere start marching up.

This excellent blog post examines the legal precedent and the potential impact in a society where consumers have been empowered to comparison shop via the internet. The author also looks at the impact of overturning this law, as internet retailers like Newegg.com may no longer be able to undercut brick-and-mortar stores (disclosure: I love shopping at Newegg):

Importantly, this case points a dagger at the heart of the most consumer-friendly aspects of the Internet. The Internet has shifted power to the consumer in two ways. First, it allows consumers to search for and gather information in a cost-effective, efficient manner. Second, it provides a low-cost means of retailing, making it easy for discounters to offer products to the public. This combination squeezes excess profits and inefficiencies out of product prices. Retail price maintenance seeks to short circuit this extremely consumer friendly process. By setting minimum prices, manufacturers can build in excess margins for themselves and for their favored retailers—prices that consumers have no choice but to pay.

This blogger clearly has his side of the issue staked out and it's my only source so far. Can anyone tell me why this would be a good thing?

Update 4:47 - here's some post-argument analysis from SCOTUSblog

Does Wal-Mart make it not organic?

Picture organic farms and you might see a farm family, carefully avoiding the use of pesticides or even mechanized equipment in order to raise the most natural animals, vegetables or grain. Technically, you might be overreaching, as the USDA defines organic food as stuff raised without synthetic pesticides or fertilizers. But you probably don't imagine mass produced products at Wal-Mart as falling into the organic category. And there you'd be wrong.

Recognizing that organic food is a rapidly growing industry, Wal-Mart has decided to jump whole (grass fed) hog into the organic market. But the question is: once Wal-Mart goes organic, does organic really mean the same thing?

Beyond the USDA definition, Michael Pollan says that organic food "should be priced not high or low but responsibly." In other words, Wal-Mart's promise to reduce the premium on organic foods to just 10% of the conventional food price means that it won't be possible to do organic farming the same way. Pollan mentions the concept of "organic feedlots," where milk cows are raised - not roaming a grass-covered field - but in virtually the same way as conventional milk cows, substituting in organic grain.

The other factor in low prices is transporting organic food from the cheapest locale. However, while this organic food might avoid pesticides and herbicides, as Pollan puts it, it will be "drenched in petroleum." With oil profits often enriching large corporations - or more worriedly - illiberal regimes in the Middle East, perhaps cheap organic food is too costly to the concept of sustainability.

But at least it won't be elitist anymore...