It was thought to be impossible, as impossible as house prices falling simultaneously nationwide, but the American consumer has stopped spending. Even when the savings rate went negative in the midst of the housing bubble, many economists took to the op-ed pages to proclaim this perfectly rational and nothing to fear. People were saving through appreciating asset prices, we were assured. Consumer-led recessions were things of the past; we’ll never run out of money.
Now asset prices are falling across the board. And with retail spending recording a record drop in October, the economy has officially begun to contract, with GDP shrinking in the third quarter of 2008.
In the past, it was presumed that we could spend our way out of recessions, this one is different. Economist Nouriel Roubini has compiled an exhaustive list of 20 reasons, but they basically boil down to what Morgan Stanley analyst Stephen Roach argued in a New York Times editorial on Black Friday: “In an era of open-ended house price appreciation and extremely cheap credit, few doubted the wisdom of borrowing against one’s home. But in today’s climate of falling home prices, frozen credit markets, mounting layoffs and weakening incomes, that approach has backfired. It should hardly be surprising that consumption has faltered so sharply.”
We are becoming poorer and probably feel poorer than we are, judging by consumer confidence figures. Even Best Buy’s CEO declared recently that “rapid, seismic changes in consumer behavior have created the most difficult climate we’ve ever seen.” Former financial analyst and tech-bubble booster Henry Blodget concurs in this post:
For 30 years, we piled on debt and then spent almost every new penny we got. This borrowing spree was made possible by a smorgasbord of no-money-down lending products and ever-appreciating asset prices. Unfortunately, the situation has now changed. The lenders who created those products have now been demolished, and asset prices are falling fast. And this is leaving American consumers with no choice but to cut back.
Not long ago, it seemed as though nothing could make us give up consumerism voluntarily—not impending global warming, not our awareness of the futility of quickening our pace on the hedonic treadmill, not the tech crash, not the blight of hipsterism, not the forced nostalgia, not the hypermediation and reification of every aspect of life, not anything. So what happens now that the impossible has become reality? How will American consumers change their behavior, now that it appears that they have no choice? And should we be pleased about these apparently inescapable changes?
Certainly mainstream economists aren’t happy. The consensus is that demand must be stimulated as fast as possible to fight what John Maynard Keynes called the paradox of thrift. If consumers respond to difficult economic times by prudently trying to save more, collectively they will assure demand will remain low and thereby deepen the downturn. Responding to news that retail sales were hurting, the Economist‘s Free Exchange blog, offered this analysis:
It doesn’t make sense that everyone else is cutting back. Yes, many people have lost their jobs. Some other have founds themselves with enormous debt burdens they’re struggling to meet. But many households, maybe even most households, aren’t facing seriously different circumstances than they were six months ago. And yet their behavior is changing, and those behavioral changes will themselves generate reductions in spending, investment, and ultimately employment. Good labor will find itself idled because folks like me are nervous, and for no other reason.
The disappointment is palpable—all these silly consumers letting mere news reports throw them off their shopping game—but nonetheless the analysis is a bit baffling. Poor risk management has led to a crisis, therefore we need to throw more caution to the wind and find ways to spend more money, whether or not we actually have it? It’s odd that we would be encouraged to spend at the very moment that we are being forced to accept the painful reality that our consumption level was unsustainable. With more “recovery packages” on the horizon, the government wants encourage us to continue the infamous Bush program of patriotic shopping: For the good of country, we must consume. Otherwise we let the economy down.
Beyond the mixed messages, such analysis reduces us unpleasantly to our social roles as consumers. Contemplating the paradox of thrift, it’s hard to escape the conclusion that frivolous consumption alone has assured the growth that made us all more well off. Though there has been much recent talk about the housing and credit bubbles, the past few decades have been dominated by a consumer-spending bubble, in which Americans systematically spent more than they earned. We’ve proven all too willing to be led into status-consumption trends that are as profitable for manufacturers as they are conspicuously wasteful and inefficient in use—SUVs are the most conspicuous example.
Such behavior may have helped keep our economy growing, but along the way we adopted a new ideology toward consumer goods. We had to convince ourselves (or let ourselves be convinced) that we need to consume all sorts of products and media as a fundamental way of expressing our identities. To this end, every consumer good has been stylized and branded, and made easy to consume quickly and throw away. Convenience has become an end in itself, as it allows us to more expediently consume more. Hyperdesigned, low-cost goods are hailed as a magnificent social achievement, since they give us all affordable access to pretty things to make us feel special. As a result of these gradual adjustments, consumerism has become the way to secure social approval and communicate our sense of self to others, and maybe even to discover for ourselves who we want to be.
This is not simply because owning stuff makes us feel good. Because of our fluid social structure and our unshakable belief in our chances of upward mobility, our shopping may be less a matter of pleasure and optimism than fear, as economist Jon Wisman suggests in a paper called “Household Saving, Class Identitiy, and Conspicuous Consumption.” Drawing on surveys that show that Americans believe that they forge their own status, Wisman argues that they consequently experience enormous pressure to display it through goods in order to authenticate it. The standards of consumption achievement are set by advertising and entertainment, which converge to make luxury life seem customary, virtually obligatory. What might pass innocently as celebrity gossip or useful consumer tips is actually our indoctrination into the nuts and bolts of status anxiety. Compelled to groom our collections of consumer goods to prove we are keeping up, we lose sight of other methods for securing social recognition, and these begin to wither away.
In fact, with this long training in the pleasures of shopping, we have developed a corresponding skepticism toward the alternatives for garnering social recognition, regarding other sorts of identities as peculiar, if not dangerous. I think of the near-instinctual visceral contempt I sometimes feel for people who brag about being above fashion or watching TV or eating sugar or whatever. Oh, aren’t they so special. If you reject the design revolution, you are obviously some sort of spoil-sport elitist who detests the democratization of fashion. Next, you’ll be calling for bureaucrats to tell everyone what they must wear.
Echoes of this sentiment are detectable in reporting on consumer confidence. What gives us the right to find other things to do besides shopping? Have we lost our minds? Why can’t we be more compliant and “optimistic”? Of course, optimistic is meant as a compliment, as opposed to being used to suggest that you are a useful idiot or a rube. For example, in a 12 November New York Times article David Leonhardt quotes Andrew Kohut, president of the Pew Research Center, who assures us that “what the American economy has going for it is the innate optimism of the public. Americans get optimistic at the drop of a hat.” We don’t need a reason. We’re just like dogs in that way—our masters will put something good in the bowl; we just know it.
But why should shopping rather than saving be seen as an expression of optimism? “I am feeling very positive, I’m going to go buy a TV set”? A determination to buy now seems to express no optimistic faith in the future. And if you read consumer confidence measures as a kind of proxy for “confidence in the consumer way of life,” high levels suggest a vote of no confidence in the alternatives to shopping as the meaning of life: the possibility of meaningful work, or in finding joy in making and doing rather than spending and getting. Thus, when consumer confidence falls, it’s tempting to assume that people suddenly enjoy consumption less. Falling consumer confidence seems like it should mean rising personal confidence. But that’s not what the consumer confidence surveys are designed to capture. Instead, they reveal that consumers just aren’t confident about having a healthy enough cash flow to support the spending they’ve been dreaming about.
But now those dreams must be put on hold as we all brace ourselves for what has been labeled the New Frugality. In August, Merrill Lynch analyst David Rosenberg argued “that fashions are going to change… We’re going to be living in smaller houses, driving smaller cars and living more frugally.” And since hitching our collective identities to the vagaries of affordable luxury is not looking so good right now, the Financial Times‘s Lex column wondered on 13 November whether “conspicuous asceticism” might become the “new ostentation,” producing “structurally lower levels of demand across all areas of discretionary spending.”
Some are very excited by this prospect. An unlikely alliance of conservative commentators, financial analysts, environmentalists, and consumer-culture skeptics have all expressed hope that the strong medicine of economic recession will last long enough to effect real change in consumer behavior, something that no amount of anti-consumerist blog posts seems likely to have accomplished. Back on 10 June, the New York Times‘s David Brooks argued that the US needed to “shift values. Franklin made it prestigious to embrace certain bourgeois virtues. Now it’s socially acceptable to undermine those virtues. It’s considered normal to play the debt game and imagine that decisions made today will have no consequences for the future.”
In Le Monde, French philosopher Alain Badiou was arguing something strangely similar, that the financial crisis has prompted a “return to the real” from a collapsing economic system that “presupposes that people be transformed into spoiled children, eternal adolescents, whose existence merely consists in changing toys.”
In a Washington Post article (reposted here) Joel Kotkin celebrated the possibilities for a “new localism” in the coming recession. In a 25 November blog post, Wall Street Journal reporter Jason Zweig wrote, “After a long and lazy boom, America has become a society that squanders just about everything, including money. If this crisis ends up changing that, we will be a better nation for it.” With the long national nightmare of prosperity over, we can become a nation of prudent savers again and be a bunch of close-knit and conscientious Ben Franklins and Abe Lincolns once more.