To all the Americans out there, happy Independence Day! I think this a great day to reflect upon how personal finance and patriotism is so intertwined in America. So I dug up a few tidbits from American history and summarized them here.
Before 1776
"No taxation without representation" is an iconic slogan that points to one of the main reasons why the American colonists sought independence from Britain more than 200 years ago. Simply put, the Americans were angry that their personal incomes was being taken without their consent. The first direct British tax on American colonists was spelt out in the Stamp Act of 1765, a law that required every newspaper, pamphlet, and other legal documents to have a British stamp upon it. Since the stamp costs money, it sparked outrage amongst the Americans because they had no need for this stamp and they did not want to pay for it. The Stamp Act was repealed in 1766, but the later Townshend Acts imposed more taxes on many other goods, including tea. These new taxes led to more unrest amongst the colonists and British troops being sent to America. Eventually, the anger over the taxes led to the Boston Tea Party, and in response to this unrest the British Empire passed the Intolerable Acts which spurred the growth of the American Revolution and eventually led to the Revolutionary War. With this history, it can be argued that the American Revolution was all about the freedom of personal finances. The Americans wanted the freedom to spend their own money how they wanted, and do business without being unjustly taxed.
The Great Depression
The Social Security Administration was formed in the midst of The Great Depression by Franklin D. Roosevelt. In a famous speech now known as "The Four Freedoms" speech , he said this, "I have called for personal sacrifice, and I am assured of the willingness of almost all Americans to respond to that call. A part of the sacrifice means the payment of more money in taxes. No person should try, or be allowed to get rich out of the program, and the principle of tax payments in accordance with ability to pay should be constantly before our eyes to guide our legislation... If the Congress maintains these principles the voters, putting patriotism ahead pocketbooks, will give you their applause." The basic message was that if people did not want to participate in the Social Security program they would be unpatriotic. Roosevelt also outlawed the ownership of gold by private citizens except in jewelry, and basically allowed banks to print as many bank notes as they want without having to redeem it for gold.
World War II
During World War II, the general message was for Americans to be frugal with their money and support the war effort. A Disney propaganda cartoon called "The Spirit of '43" showed the good side as a thrifty and hardworking Donald Duck who paid his taxes, and the film explained that if you did not pay your taxes a good soldier out there would die. The propaganda message was that if you spent your money you would be helping the Axis powers and if you saved your money for taxes you would be helping your country. Many war bonds posters were also made to encourage people to invest in the war effort. In the present day, many of these colorful posters have become collectibles.
Now
After World War II, consumerism somehow became synonymous with patriotism in America. Americans are systematically encouraged to spend their money. In the fifties and throughout the era of the Cold War Americans were told to spend in order to be as different from communists as possible. After the Cold War, consumerism is already a big part of America's GDP. After the September 11 attacks in New York, the country slid into a recession and many companies created ads that linked spending money to helping America. Additionally, the Federal Reserve made it cheap to borrow money to encourage spending. Recently, homeownership was also touted as a way to fight terrorism and keep our country secure. This year, nearly every tax paying American is receiving a "stimulus check" that they are expected to spend to give a boost to the economy. President Bush said in a speech in February that "the purpose is to encourage our consumers. The purpose is to give them money …Consumerism is a significant part of our GDP growth, and we want to sustain the American consumer, encourage the American consumer…". The dominant message out there is that if you want to help your country, you must take out your pocketbooks and spend like there is no tomorrow.
I realize that this is a extremely abbreviated collection of American history, but I think it is interesting how the idea of patriotism affects the personal financial decisions of Americans. There is also a stark contrast to how taxes is viewed in the different eras of American history. At first it was a sign of oppression, but eventually it became a symbol of power, freedom, and patriotism. I feel that the current state of promoting rampant consumerism as patriotism is a bit irrational, but I guess propaganda always appeal to the emotion and not reason.
I know that some Americans also show patriotism by only purchasing items made in America, or refuse to travel abroad. Do you show your patriotism with your pocketbook? If so, how do you go about it?
And History Repeats Itself...one of these days the people are going to to get so fed up with high taxes and reckless spending that we may yet have another Revolution....or Bankruptcy as a country.
My "stimulus check" gets to "stimulate" my Roth IRA...and since a Mutual Fund "buys" stocks I feel I'm doing my "Patriotic Duty" by spending my check. Sears and Wal-Mart be D**ned.
~ Roland
These days I equate patriotism with going green so I try to buy organic food and green products when I can.
I had no idea about the Cold War spending initiative. Now I have to go read up on it some more :)
This was a very informative post and well written. Thank you for sharing it and giving the rest of us some food for thought. Enjoy your holiday!
History is repeating itself but it never does repeat itself in the same way. America today is very close to being what the Roman Empire was in it's declining years. Will we fall to barbarians? No but only because we have 6k nuclear weapons- but thats all we have. As the Romans became lazier and more decadent, they began to debase their money by mixing lead into their gold coins. This charade continued for a time until people got wise and demanded more coins for the same goods. Our government is doing the same thing today- devaluing the dollar to bail out the banks and insolvent consumers.
Financial capital is like seed corn- when you sow it in the form of investment in ventures that produce goods of real value, the economy expands and you get more capital. The US has been eating it's seed corn for the last 40 years and now its almost gone. When the world emerges from the coming financial catastrophe, China will be the preeminent economic power. The Chinese have invested their seed corn, their people live frugally and now they are quickly gaining economic power. They will price many Americans out of critical markets like oil and high quality food. The average American will see his/her standard of living fall precipitously in the coming years as their credit gets slowly cut off completely. The average Asian will see large gains as they have captial and do not need credit. In the end, we will reap what we have sown.
http://www.youtube.com/watch?v=fGWxBpoZtZ8
http://market-ticker.denninger.net/index.html
"I have said it before and I will say it again.
Get out of debt. Now.
Raise cash. Now.
If your job has any chance of becoming imperiled, expect that it will be, or you may lose it outright and a replacement may be hard to find. You need six months of cash reserves - minimum - at a time like this, and one year's worth is better. No, credit does not count - available credit is already being tightened up and is likely to nearly disappear entirely for many Americans over the next couple of years.
And yes, I do expect that things may well get that bad"
Well Stated, I wish more people would get it. I do think your time frame is a bit hastened but still some good advice. China is very secretive about any long term plans. But they have successfully duplicated our middle class which is/was the fuel of America.
Being totally debt free is great burden lifted from anyone's shoulders.
Cash reserves are smart no matter what the economy does.
To some it may seem like 6-12 months cash is a lot but if your debt free, it really isn't.
The outlook is not good based on the belief that people can get something for nothing, this November's outcome could hasten our peril. Back to your point, returning to the times of Romans...
I love how people compare the old to the new and think wow we really suck today compared to the financially fit of 1776... The reality is the amount of money and purchasing power of yesteryear compared with today is what actually bred the American consumer. We consume more today because we have more expendable income.
The danger comes when people forget to save a little of that money and instead borrow to the hilt to continue their convoluted financial lifestyles.
And for those looking at China or any other country as the next "leader" of the world... you've got it all wrong. China is as dependent upon the American/European consumer as a crackhead is to crack. The moment the American consumer or European consumer scales back, the more immediate the Chinese will feel that crunch... and any savings they had will be eaten up due to that process.
We live today in a globally interconnected financial super center. The failure of one major part will be felt throughout the whole.
It's in America's as well as the rest of the world's best interest to see this "crisis" through and to see the American consumer continue to spend, yet at the same time to also increase savings, start being more financially frugal, and maintain some economic sanity.
China will not be immune to the global recession. However, eventually domestic and regional demand will pick up and replace Western exports as a leading sector. Think about what is happening now- Asians are lending Ameicans their capital so we can buy their goods. They are losing an incredible amount of purchasing power by holding our dollars as the currency is devalued. They are doing this to maintain political stability because exports provide many jobs. We are already seeing the results of increasing Asian wealth and the declining dollar in the price of food and gas. What happens when billions of people with money increase demand for the things we take for granted like food and gas? Higher prices. As these people become even better off financially and decide that cars are better than feet for transportation and that they want more meat to eat, we will see increased pressure on the American consumer as they struggle to buy necessities.
Once Asian demand picks up, they will have no reason to continue lending us money. As in the Great Depression and the aftermath of WWII, the US replaced Europe as the center of commerce because we were the creditors and they were the borrowers. Now, the US is the greates debtor in the history of the world. Once Asia tires of financing us, interest rates will skyrocket producing defaltion in everything except necessities.
I would love to know how some of your American blog devottees feel about the whole 'China will soon be the next world power' sentiment that is so prominent. Are you threatened or do you see it as inevitable? Will this power shift happen in our lifetime?
Mo
I really like this post it is an interesting look at our history and it's kind of a good breather from other financial blogs. I didn't know much about communism or the taxation prior to our independence.
This is a very interesting subject. I will have to read more about this. Thanks!
But I did do a good turn to capitalism by going out and spending my economic stimulus check promptly... Perhaps I should have saved it, but well, I didn't. After all, $300 isn't going to make or break the universe...
Tax is a key part of America's existence, perhaps even more than religious freedom (well, freedom from persecution).
What is also interesting is to see the actual tax rates across time. One thing seems to be certain: the more wars we have, the more taxes will increase.
China will be the worlds new economic power. Its not a question of if, but when, and when is not as far away as we think. The US will still have substantial power in trade, there is no doubt about that. We are the leading importer/exporter in the world currently and have been for some time. Once China does over take us though we will feel the effects as we already have. For all of those who think the US will fall off the face of the earth though, that is ridiculous, we will simply take the co-pilots position and still maintain a standard of living well above the rest of the world. We need to maintain a free trade policy and pray that we elect the right person in this time of transition.
China never planned on a long term export trade scenario. It has always been about improving there infrastructure so as to best take care of their own. That is powerful; now if our corporate brothers would start concidering the same ideals we Americans would benifit greatly and ultimatly so would the corporations. The question now becomes, are we going to start making our own goods after foriegn interests no longer need us and will we do it soon enough.
