The Time Preference Riots

October 23, 2008 7:31 PM by S.M. Oliva | Other posts by S.M. Oliva | Comments (7)

Scott Adams suggests it's time to "start hoarding supplies" in anticipation of post-election rioting:

Here's a sequence of events and conditions that would lead to rioting. Do you see anything on the list that isn't likely?

1. The economy stays bad for a another month
2. Obama has a clear lead in the polls before election day
3. McCain wins anyway. While the real reason for the polling discrepancy will be racism, there will be a widespread belief that the election was rigged. And there will be plenty of real and imagined evidence that it was.
4. Riots will break out, partly out of genuine anger, partly to get that new flat screen TV.

The possibility of rioting also concerns me. But unlike Adams, I don't think the underlying problem is racism or even the perceived integrity of the election process. I think Karen De Coster has identified the real issue -- the bursting of the "standard of living bubble":

Because real wages have not been rising, the growth in consumer spending could only have been financed through borrowed money. Debt, which allows consumers to have cash on hand that hasn't been earned or saved, has given Boobis Americanus the ability to live beyond his means, at least for a little while. And a great many have taken up this "pay later" lifestyle, accumulating a great many houses, cars, and other things.

[ . . . ]

[H]ome equity has been funding the purchase of everyday consumer durables, especially those items that tend to be discretionary in nature. Home equity has funded the kind of purchases that should be funded from earned, saved monies. A perpetually (and rising) line of credit induces consumers to "bite" at the availability of easy money at low rates, and thus they take the cash and spend their way to a perceived prosperity.

For the average person, "things" have become identical to wealth. They equate the accumulation of "stuff" with "being loaded." Accordingly, everybody has been well-heeled in these bubble times. The availability of debt at bargain rates and the glory of immediate accumulation due to debt quickly erodes the values and common sense of people.

De Coster identifies automobiles as a key area where consumers have used cheap debt to live well beyond their means. Another is higher education. Cheap, government-backed student loans -- in addition to that all-important home equity credit -- led millions of families to subsidize their children's "education" at expensive four-year colleges (and beyond) that offer a little in the way of true education but tons of "student life" amenities. Higher education is now merely consumption for consumption's sake. As I noted in a post last year, George Washington University -- just near the White House! -- became the country's most expensive undergraduate college at over $50,000 per year. This wasn't due to any great improvement in the school's curriculum or instruction; instead, the higher tuition was mandated by a boom in the construction of new dorms and non-academic facilities.

The standard of living bubble has enabled millions of teens and twenty-somethings (even thirty-somethings) to avoid productive work in favor of consumption -- er, "education" -- while continually pushing the boundary of what is considered a minimally "successful" lifestyle.

This brings us back to the election and its possible aftermath. The backbone of Barack Obama's campaign is this same group of young people who've lived most of their short lives inside the standard of living bubble. They expect their problems to be solved quickly and with other people's money, since that's the only lifestyle they've ever known. An election holds the lure of easy answers to difficult questions. Anyone with a genuine education knows better, but the consumption-driven masses tend to think in terms of, "He says there aren't any easy answers; I say he's not looking hard enough!"

If Obama fails to win -- whatever the reason -- there's a definite risk of violence and rioting, since this young "middle" class won't have any other means of coping. As De Coster notes,

The bursting of this bubble and its unwinding could result in some unpleasant withdrawal symptoms. People--especially younger folks--who have been reared on the splendiferous way of life that debt offers, will be resistant to changes which will require lower time preferences (longer term views) and more careful planning in terms of shuffling around priorities. As Main Street endures a stifling credit crunch; inflation; increasing interest rates; scores of home foreclosures; cut-off of home equity lines; a job market squeeze; soaring federal, state, and local taxes; and the inability to manipulate low-interest credit cards to cover shoddy financial decisions, there will be restlessness amongst the masses, especially from those people who have never had to live within their bona fide financial means.

Obama, in this sense, is the last hope for these people to avoid dealing with lower time preferences. Of course, even if Obama is elected, he lacks the skill set necessary to actually address any of thess underlying problems -- or even fake it convincingly. Thus, violence and rioting may only be delayed by an Obama victory rather then avoided.