Globalization creates interlocking fragility, while reducing volatility and giving the appearance of stability. In other words it creates devastating Black Swans. We have never lived before under the threat of a global collapse. Financial institutions have been merging into a smaller number of very large banks. Almost all banks are interrelated. So the financial ecology is swelling into gigantic, incestuous, bureaucratic banks - when one fails, they all fall. The increased concentration among banks seems to have the effect of making financial crisis less likely, but when they happen they are more global in scale and hit us very hard. We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogeneous framework of firms that all resemble one another. True, we now have fewer failures, but when they occur - I shiver at the thought.

The world view of finance and economic changed within weeks as previous economic models were rendered useless. Now that we’re in the post-financial-meltdown world, the airways are filled with pundits and experts everywhere exploring and analyzing in hindsight how ended up in this mess. (The best, by far, is This American Life’s The Giant Pool of Money - which, btw, aired pre-collapse back in May - and the follow up piece, Another Frightening Show about the Economy) As I’ve watched this unfold and learned more about the behind the scenes dynamics, I’m blown away wondering how in the world did they not see this coming?

from www.mathworks.co.kr - Risk-assessment model developed in MATLAB

From a NY Times interview with James K. Galbraith:

Do you find it odd that so few economists foresaw the current credit disaster? Some did. The person with the most serious claim for seeing it coming is Dean Baker, the Washington economist. I saw it coming in general terms.

But there are at least 15,000 professional economists in this country, and you’re saying only two or three of them foresaw the mortgage crisis? Ten or 12 would be closer than two or three.

What does that say about the field of economics, which claims to be a science? It’s an enormous blot on the reputation of the profession. There are thousands of economists. Most of them teach. And most of them teach a theoretical framework that has been shown to be fundamentally useless.

Contemporary writers are weighing in with similar questions and explanations, all lending credence to sociologist Herbert Blumer’s theory of Collective Selection. Here are a few quotes from his still influential paper published by the Sociological Quarterly in 1969 explaining that ‘fashion’ is not a ‘thing’ limited to clothing, but a mechanism pervasive in all areas of contemporary life, including those whose leading voices would deny this most vehemently:

It is necessary, first of all, to insist that fashion is not confined to those areas, such as women’s apparel, in which fashion is institutionalized and professionally exploited under conditions of intense competition. As mentioned earlier, it is found in operation in a wide variety and increasing number of fields which shun deliberate or intentional concern with fashion. In such fields, fashion occurs almost always without awareness on the part of those who are caught in its operation. What may be primarily response to fashion is seen and interpreted in other ways – chiefly as doing what is believed to be superior practice.

Robert J. Shiller explains this phenomenon of economists confident in their ’superior practices’ in terms of social psychology and Groupthink. From the NY Times, Challenging the Crowd in Whispers, Not Shouts

And why didn’t a consensus of economists at universities and other institutions warn that a crisis was on the way?

The field of social psychology provides a possible answer. In his classic 1972 book, “Groupthink,” Irving L. Janis, the Yale psychologist, explained how panels of experts could make colossal mistakes. People on these panels, he said, are forever worrying about their personal relevance and effectiveness, and feel that if they deviate too far from the consensus, they will not be given a serious role. They self-censor personal doubts about the emerging group consensus if they cannot express these doubts in a formal way that conforms with apparent assumptions held by the group.

… Deviating too far from consensus leaves one feeling potentially ostracized from the group, with the risk that one may be terminated.

(more…)

Never has my decision not to move to NY a few years ago and pursue a career in the fashion industry felt more validated. Even during boom times the industry is cutthroat and oversaturated with both the talented and the delusional, but now it’s getting downright Darwinian as the handful of companies experiencing growth are not nearly enough to absorb the layoffs due to significant contractions of the majority of the industry.

The strong will gobble up the weak

From the Economist’s American Retailing section, Left on the Shelf:

Every single retailer is hurting from the drop in demand, but the weakest are in grave trouble. Some, already struggling in an intensely competitive retailing market, are in free-fall, possibly even heading for bankruptcy. For their stronger competitors, that makes the present such an unmissable opportunity.

“This bifurcation, in which the strong get stronger, the weak weaker, is occurring at every level of the retailing industry, from top to bottom,” says Thierry Chassaing, a consultant at Boston Consulting Group (BCG).

The crisis in American fashion consumption is also having a dramatic and immediate affect on the overseas production side as well. WWD reports, China Manufacturing Hard Hit by Financial Turmoil:

About 10,000 textile and garment factories shut down in the first six months of the year and 20 million manufacturing jobs were eliminated, according to Chinese government figures.

“The truth is that the total amount of manufactured products is already too high,” said textile analyst Li. “There’s not enough demand and the only solution is for some of the factories to close down to rebalance the equation of supply and demand.”

While there is plenty being written about the fallout at the corporate level, including reports of job losses at the retail stores, I’ve been unable to find analysis on what this means for aspiring fashion designers and others at the tastemaker level (marketing, stylists, editorial, etc.) But as demand dives, revenue shrinks and lines of credit are cut off, it can’t possibly be good news for job outlooks, and those who had only a few months ago assumed a bounce back was months away are now acknowledging no viable path back to the happy days of the recent past. (more…)

image and caption from gulliver.cc - Fibber McGee and Molly radio show from the 40s and 50s

Two years ago the experts declared that America was not ready to elect a black President. Last week they were proven wrong. Two years ago another set of experts on the economy, retailing, marketing and fashion assured us that America’s consumer economy was sound and strong, and that it would only keep growing. The fashion trend cycle was accelerating, cheap chic and disposable fashion ruled and new malls were opening and old ones upgrading left and right. As I studied the fashion industry from and ecological perspective - in particular the ever increasing volume of clothing created and disposed of and the culture that mandated racing on the hamster wheel of work and debt to keep up - I often wondered what would happen if people just. stopped. shopping. Or even just cut back on the stuff they were wasting. But two years ago the only other voices I could find echoing mine were on the fringe and most saw this as an inevitable - yet far off - consequence of an ecological crisis. (Many, myself included, would argue that we already are in an ecological crisis, however it is one that is not yet being felt by consumers.)

And now here we are, nearing the end of 2008 and what are we seeing in the mainstream media? “Retail sales collapse” and the “Buying binge slams to a halt.” The headlines just keep getting more dramatic, and the numbers more dire.

from this afternoon’s NY Times report on the latest drop in the Dow,

Analysts said they expected the bleeding to continue through the holiday season.

“We’re not done,” said Stacey Widlitz, a retail analyst at Pali Research. “This is just the beginning. Retailers are saying they’ve never seen this kind of shift in consumer behavior in this short a period of time.”

Peter Schiff, president of Euro Pacific Capital, said the retail numbers were evidence that America’s years-long spending bender had ended. He said the bankruptcy filing of Circuit City, which remains operating, helped to signal a permanent shift in the service economy and said other companies would fail before the economic crisis abated.

“The old expression, ‘Shop till you drop’ — we did it,” he said.

Below are excerpts from four recent articles in the New York Times and Wall Street Journal. Take note of the following themes:

1. Retail sales have ‘fallen off a cliff.’
2. Consumers are waking up and looking at their overstuffed closets, realizing how much money they’ve spent, and feeling embarrassed and guilty about it.
3. Carefree spending has virtually stopped, and consumers are questioning every purchase and asking ‘do I really need this?’
4. Conspicuous consumption suddenly seems crass and saving money and getting things for cheap is now cool.
5. There has been a sudden, yet fundamental shift in the psychology of spending (see above) and since common knowledge no longer predicts any sort of immediate recovery, it looks like ‘the way people have been shopping is now over.’

From the Economist’s American Retailing section, Left on the Shelf:

The unthinkable has happened. American consumers are losing their urge to shop.

Note how it’s not that they have just stopped shopping, but that they have lost the urge that drives it. (more…)

The other week I heard two back-to-back pieces on NPR’s All Things Considered about a bill that passed creating a new Intellectual Property Czar. The first made me queasy, the next provided some comic relief. Let’s start with the troubling news from Laura Sydell’s What Will The Intellectual Property Czar Do?

The bill also has a forfeiture provision that will allow law enforcement to seize assets from anyone accused of intellectual-property theft — even before they are proven guilty. It also authorizes more than $50 million to help state and federal law-enforcement agencies.

…According to the U.S. Chamber of Commerce, 40 percent of the nation’s economic growth comes from intellectual property, including music, movies, pharmaceuticals, fashion and software. But the biggest backer of more law enforcement is the entertainment industry.

The focus of both articles is illegal file downloading and copying. My ears perked up when I heard the word ‘fashion’ but clothing design did not appear again in either article. WWD wrote Anticounterfeiting Measures Seen as Boost to Battle Bogus Goods, but it focused only on counterfeit goods - those exact replicas of branded designer goods emblazoned with trademarked logos and meant to pass off as the real thing - and not on knockoffs - garments and accessories that are ‘inspired’ by designer pieces, but do not contain logos and labels of the source luxury label.

As we know, copies of a fashion designer’s intellectual property - from the legitimately branded to the knockoffs - are still tangible garments that still require human hands to feed the physical components through equipment largely unchanged over the past 50-100 years.

catlike agility

Contrast this with the entertainment industry, which 100 years began its rise to economic and social power only because new technological developments enabled it to produce copies of works that could reach and audience beyond live performances in theaters and concert halls. The twentieth century saw the reign of the producers and production companies - those in charge of the expensive technology required to capture, edit and distribute the images and sounds of the cultural commodities. But a classic, poetic example of dialectics, the march of technological innovation that enabled the fortunes of Hollywood executives is now threatening their demise. So just like a mega corporate conglomerate, it turns to the U.S. Government to call in the favors of campaign contributions act as personal henchmen for their industry. While the bill sailed through Congress, at least it was good to see that the Justice Department demonstrated some opposition: (more…)

Tonight I can finally exhale. Comedian Andy Borowitz has this headline on the Huffington Post tonight, Failure to Blow Election Stuns Democrats. Although I’ve been following - and supporting - the rise of Obama for over 2 years, the combined trauma of the previous two upsetting limbo elections had left me too skittish to write about this until now. But tonight everyone on television, conservative and liberal, candidates and commentators, agree that this is a defining moment in history.

The Huxtable family from the 1980s The Cosby Show

What surprised me, though, was how the topic of race was so center stage. Of course having our first black president is historic, but I guess I didn’t expect that to become the main focal point of election night conversation. It was almost as if everyone until now had been behaving politically correctly and not mentioning the elephant that apparently has been in the room the whole time, even if references to it have sometimes been veiled. There had been constant speculation about the Bradley Effect - would white people feel comfortable actually voting for a black man or would they just be politically correct and say they would but actually just not be able to do it? um, NO. Early analysis of exit polls say there is no evidence of a Bradley effect, whatsoever. Those who didn’t want to vote for Obama because he was black didn’t lie about what they’d do, they just found and followed other soundbyted reasons. (muslim, terrorist, marxist, etc.) And those people were in the minority!

Yesterday I came across an article in the Chicago Sun-Times by Alisa Valdes-Rodriguez titled The Huxtable Effect: How Cosby paved the way for Obama’s candidacy:

A couple of twenty-something college students, neither one African-American, stood in front of me chatting about how they used to wish Cliff Huxtable was their dad when they were kids. Cliff was tough, but cool.

In all the talk about the supposed “Bradley effect” in this year’s presidential election, I think big media have missed the much bigger story, which is to say few of them are writing/broadcasting about “The Huxtable Effect.”

”The Huxtable Effect,”’ as I’ve coined it, speaks to the importance of images in popular culture — TV, movies, music, books, etc. — and formation of both a sense of self in viewers and, most important for our discussion now, a sense of others.

Social scientists have long shown the link between what children see in popular media and how they view the society those images purport to represent.

The Obama family, 2008

It has been theorized that every major political movement in the U.S. has followed, by about two decades, a matching movement in the arts and pop culture.

(more…)

I watch the Daily Show with Jon Stewart for comic relief, but isn’t it funny how satire can be dead on? This was from a segment with Wyatt Cenac:

Volatility frequently occurs when everyone suddenly realizes that the stock market is just a consensual mass delusion based on fictitious valuing of abstract assets.

I’ve been expecting consumer crunch for a while - after all, Americans were spending more than they were making and sooner or later that easy credit was going to run out. I expected a slump, but had no idea I’d be witnessing such a spectacular implosion that spread like wildfire across the globe. Kurt Andersen writes eloquently about the collective experience of this meltdown in his piece for New York Magazine, Whiplash City:

So seldom do we motley millions all think and talk about the same thing at the same time—let alone two great big things, let alone intensely and continually for weeks at a time.

(more…)

No discussion that intersects fashion and feminism is complete without a debate on high heels - are they a symbol of enslavement or empowerment? Why, in spite of the well documented health problems they cause, do they continue to inspire lust - not to mention reckless spending - by both sexes? Hannah Betts gives a great overview of both sides of the debate, and includes her own perspective suggesting that the whole matter might be more primal than theoretical. From the Guardian UK’s, Are We Just Masochists?

Christian Louboutin's Orlan Ponyskin Sandals, $930 at Net-a-Porter.com

Yet many women - myself included - who consider ourselves vehement, lifelong feminists feel no desire to relinquish our heels. In 1995, when Germaine Greer and Suzanne Moore enjoyed a public spat, Greer poured scorn on Moore’s “fuck-me shoes”. “The thing is,” sniffed a feminist contemporary at the time, “some of us don’t have a problem with fucking.”

And there’s the rub - sex - festering away like the blister it is. When I last experienced heel lust - for a pair of sumptuous 4in Louboutins - my pupils dilated, I had butterflies, and my cheeks turned florid.

…Dr Gad Saad is associate professor of marketing at Concordia University, Canada, and author of The Evolutionary Bases of Consumption. “High heels may well be the most potent aphrodisiac ever concocted,” he says. “The height sensuously alters the whole anatomy - foot, leg, thigh, hips, pelvis, buttocks, breasts. Men are perfectly frank in admitting that high heels stimulate their sexual appetite, and women, consequently, assign to stilted shoes all the magic of a love potion.

(more…)

Queue up REM: “that’s great it starts with an earthquake…” or a freeze in the global credit markets followed shortly by once hero of the Wall Street Masters of the Universe, Alan Greenspan, stating that he found a “Flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak.” And as Kurt Andersen wrote how the Bush Administration’s rush to a $700 billion bailout “proved that there are no Milton Friedmanites in foxholes.” Now that the reality of this crash has sunk in, the pundits are weighing in and the general consensus is anything but optimistic.

Ligorano/Reese ice sculpture (photo: Artinfo.com courtesy of artists)

Greenspan’s words were unanimous headline news, and Rachel Maddow reported that night that the earth moved, and the tectonic plates underpinning Washington had shifted. Everywhere I surf I’m finding apocalyptic language and dire warnings. Obviously, this is a crisis in progress with many more chapters, but here are a few notable quotes as of now:

Let’s start with Greenspan’s hearing on Capitol Hill: (which just so happens to provide a convenient answer to my previous post questioning his judgement)

We are in the midst of a once-in-a-century credit tsunami.

…Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief.

Given the ideological leadership of Greenspan over the last few decades, the magnitude of his admission cannot be overstated.

Floyd Norris in his NY Times blog post, United Panic, shared this excerpt from the Jerome Levy Forecasting Center at Bard College:

Now everybody thinks the economy is in a recession, and many think it will be long and severe. People make comparisons to the 1930s all the time. Everyone thinks consumer spending is in big trouble. Lots of people think the Fed will ease. Financial instability, a theme we harped on ad nauseam during the past three years, is now the primary economic topic of discussion.

(more…)

I’ve been reading and writing about the consumer crunch for a while now, and the pre-September meltdown sentiment was that while the lower and middle class mass markets would see contractions and cutbacks, the luxury markets of the very rich are - and would remain - relatively impervious to the downturn.

a look from 3.1 Phillip Lim - one of the designers expected to do well in the downturn. (Photo: style.com)

That was then. Back in July I wrote of indicators that the luxury market was softening. They were antsy then, and now seem to be frozen in disbelief. And as Kurt Andersen points out in his piece for New York Magazine, Whiplash City, the over the cliff drops in the global financial markets had an immediate and disproportionate affect on the rich:

In just two months, the investor class has had its wealth reduced by $2 trillion or more. Thanks to the stock market, the rich got much richer, and now, thanks to the stock market, the rich are getting much poorer faster, in relative terms, than actually poor people.

And it is this investor class who make up the majority of high end designer clothing purchases, that tiny fraction of the total volume of apparel sales that get the lions share of editorial attention. Eric Wilson provides an insightful analysis for the New York Times Fashion and Style Section in his article, Hello, Customers. Are You Out There?

With the spring Fashion Weeks coinciding with the fall financial meltdown, retailers are faced with a dilemma that is partly economic and partly psychographic: How do they convince consumers of luxury goods to loosen their wallets when even the wealthy are showing signs of cutting back? And how do they plan for spring when the fall collections, now in stores, seem to be toxic?

Several retailers said sales of expensive fashion, especially clothes, had come to a standstill at the end of September.

Not a slump, a standstill.

…One woman, stopped outside Barneys on Friday, was carrying two shopping bags from the store. Asked what she had bought, she said, “Nothing. I’m just returning everything.”

Over the past year accounts of drops in retail sales were often accompanied by hopeful projections that things would be back up again by 2009. No one is clinging to those delusions any more. From Business of Fashion’s post, Luxury Outlook: Grim and Grimmer:

The sudden freeze in spending is a reaction to dramatic drops in the value of individual pension and stock portfolios, plummeting residential real estate prices, and impending job losses. And probably most of all, the ongoing messages of depression-era doom and gloom screaming from the front pages of newspapers, making everyone question every purchase.

So the ‘cautious pause’ has evolved into a terrified freeze? And don’t expect a thaw anytime soon:

Whereas once we we may have thought we were only dealing with a crisis in our financial system, we are now also dealing with a more fundamental crisis in the economy at large. Previous recessions have been short and shallow partly because consumers, who make up the lion’s share of GDP, kept spending. This is not the case this time around.

(more…)

While the predictions for most apparel retailers slide from grim to gruesome, sales of secondhand clothes - from cheap thrift to exclusive designer vintage - are surging. Emili Vesilind writes about the secondhand scene in LA. From Secondhand clothes, with sales rising, are the new scaled-back chic:

Small boutiques are folding (Trillionaire, Twenty Two Shoes and Diabless recently called it quits in Los Angeles) and department stores are grappling with sluggish sales, but thrift, resale and vintage stores are bursting with customers and intriguing merchandise.

Retailers report that profits are through the roof. Sales at Decadestwo are up 45% from last summer, said co-owner Christos Garkinos.

Balenciaga dress featured on DecadesTwo blog

Michelle Webb, co-owner of the Catwalk boutique, which sells secondhand and vintage designer fashion (some of it on consignment), said her shop had also seen an increase in sales and that the merchandise filtering in was getting “more interesting. And there’s been an increase in people calling to consign or sell their heirlooms.”

Could it be that L.A.’s affluent are finally feeling the pinch? “I think the economy is affecting everyone,” Garkinos said. But just as likely, it’s “closet guilt” — the uneasy feeling that there is such a thing as owning too many pairs of Christian Louboutin stilettos. “We have the most well-heeled clientele in the world,” Garkinos said. “They’re taking a look in their closets and saying, ‘I don’t need all this stuff.’ “

LA fashionistas walking into their closets and experiencing pangs of eco-consumer guilt? I’m skeptical on that one. I think the more likely scenario might be buyer’s remorse, the inability to afford yet another California Closets expansion, or could it be that a few of this gals are facing a move out of a mansion?

This increase in supply in LA is a contrast to what I noted in a previous post about the donation supply going down nationwide. But perhaps LA’s well-heeled clientele isn’t simply donating these items to the Salvation Army as they might have done in the past, but word has spread about the ability to cash in via consignment. What will be interesting to see is what happens over time; if this same clientele is buying fewer new things now, and the closet purge has already happened, then will the supply stream start to taper off? (more…)