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High on Plastic : How we went from cash on the barrelhead to 'charge it!' in 30 short years : A PIECE OF THE ACTION: How the Middle Class Joined the Money Class, By Joseph Nocera (Simon & Schuster: $25; 464 pp.)

October 23, 1994|Christopher Byron | Christopher Byron is the Wall Street and business columnist for Esquire Magazine

Few developments in the last half-century have had a greater impact on the lives of everyday Americans than the proliferation of financial services to the middle class--the welcome subject of "A Piece of the Action" by financial writer Joseph Nocera. Deploying a large cast of characters and a breezy--if occasionally just a touch too chatty--writing style, Nocera fills in what is literally 30 years of missing history to the story of post-war America: How aggressive marketing and one-upmanship by bankers and businessmen all over America persuaded everyday folks to give up the virtues of frugality and thrift in return for lives that until not so long ago had been the exclusive domain of "people of means." Nocera leaves it to the reader to decide whether that is something to be applauded or condemned, but he provides enough ammunition to keep arguments going for quite a while.

It was, in fact, scarcely 30 years ago when nearly everyone paid for almost everything with cash, when credit cards like Carte Blanche and Diners Club (remember them?) still had a certain snob appeal about them, and when no homeowner in his right mind would have considered asking the bank for a second mortgage in order to pay off some bills, then use the rest to take a vacation in Barbados.

How times have changed. But so too have the living standards of Americans along with them. By almost every measure possible--from outlays for health care, to home appliances, to vacation and travel--the 30-year period of America's "money revolution" has seen an unprecedented boom in the consumption of the goods and services that nearly everyone would agree are what help make life fun to live.

Yet where exactly did the money to finance this spending explosion come from? Mainly, it would seem, from the financial services industry--the banks, brokerage houses and mutual fund companies that for more than three decades have competed with each other to feed (and profit from) the appetites of the American middle class.

Depending upon how one measures it, that industry is today the biggest business in America, if not the world. By one recent tally, the average American today carries not one but 6.9 different credit cards. What's more, the cards are used so freely and often impulsively that the resulting debt balances now total close to $309 billion, or nearly 10% of all disposable personal income in the country. Moreover, one in eight homeowners now carries a "home equity" loan (average size: somewhere around $50,000) on his or her home as well, yet another form of consumer spending that was unknown 30 years ago. Finally, there's the spectacular growth of the mutual fund industry itself, which has reopened the door to Wall Street that had been slammed shut for most folks with the Great Depression. As a consequence, 13% of all household financial assets in America are today invested in stocks, bonds and other financial instruments through mutual funds of various sorts.

Passing judgment on this process has become, in a sense, the preoccupation of post-war American politics. Yet not until "A Piece of the Action" did anyone bother to step back and ask how the whole thing actually did happen. When did Americans start paying as much attention to the closing numbers of the Dow Industrials, as they paid to baseball scores, and why? Who invented the Visa card, and why do shoppers now whip that one card out more than 5,000 times a minute during the Christmas shopping season? When did Americans become interested in gold prices in Hong Kong, and why--and what special message helped Money magazine become the Bible of middle class investors everywhere?

Questions such as these provide the energy--and much of the entertainment value--of Nocera's ambitious business history. To be sure, the book is not without flaws. At times the narrative seems so broad-ranging and unfocused that one has a sense of a writer having stumbled into the research equivalent of a land war in Asia. There are also one or two instances in which individuals in the story seem to have been treated too harshly. It might be argued, for example, that Nocera passes too critical a judgment on Marshall Loeb, the irrepressible former editor of Money magazine. It goes too far to suggest--as the book seems to do in a couple of places--that Loeb intentionally distorted facts to give them a sunny, reader-pleasing appeal, or that he willingly down-played the risks in the various investments his magazine touted. The fact is, as Nocera himself acknowledges, Money's ceaselessly optimistic message to invest in stocks and mutual funds turned out to be amazingly good advice. Anyone who followed it and put $1,000 into the 30 stocks of the Dow Industrials when Loeb took over as Money's editor in March of 1980 would have seen it grow to nearly $9,000 by this last September.

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