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Friday, Aug 21, 2009

Yves Smith noted a WSJ article reporting diminishing retail sales and heralding the new austerity in American consumers. This tidbit didn’t quite fit the frame: “A cashier at Target in Los Angeles checks the authenticity of $100 bills.” Counterfeiting is not exactly the act of an austere, frugal consumer, though it may be the act of debt-starved one. 


Zero Hedge unleashed a long analysis of “the stratified American consumer” last weekend, making the useful point that the way the designation “American consumer” is thrown around tends to conceal the fact that it is not a homogeneous group. Statements like “Major retailers reported that American consumers are continuing to hunker down” from the WSJ article are not especially useful, because it is extrapolating a universal mental framework from aggregate macro data. (The same problem arises when a negative savings rate is extrapolated into “all Americans are spendthrifts,” a rhetorically tempting logical leap I’ve certainly been guilty of.) Zero Hedge:


A drill down of disposable net income (after tax) and net worth, demonstrates why any discussion of “generic” consumers should be much more properly phrased as an observation of the “Wealthy” and “Everyone else”. The disposable income difference between the richest 10% and even the next richest decile is staggering: a 3x order of magnitude….
While 10% of the population collects 40% of disposable income, it represents 57% of net worth! This is an impressive conclusion: on a lowest common denominator, the Net Worth variance between the 10% of the population that make up the wealthy and the 50% that comprise the middle class is over 8x! No wonder the aspirational consumer was the most vibrant retail category at the peak of the bubble: if the middle class can not accumulate 8x the net worth it needs to migrate into the top decile, it can at least dress like it. Unfortunately, it did these purchases on credit and is now paying for it (or not).


The upshot of this analysis is not surprising, but worth reiterating: that the data trends tracked regarding consumption reveal consumerism as a middle-class phenomenon driven probably by status envy of the upper-middle class for the upper-upper class. That the gap is widening means that the consumers now discovering austerity aren’t liking it very much and that there is no paradigm shift to a culture of maximum utility extraction. Also worth noting: The lower classes (the bottom 40% who consume 12% of what’s consumed in America) are statistically and economically irrelevant. I wonder if there is a social corollary to that—beneath a certain income point, one’s subsistence-style consumption becomes anonymous. The thought inspires in me a classic middle-class fantasy of the escape into squalor, a la the George Orwell of Down and Out in London and Paris: the dream that subsistence living is automatically authentic, and this authenticity compensates for the misery of relative deprivation.


The conclusions drawn in the Zero Hedge post seem ominous: The recession has hurt the lower and middle classes more than the wealthy, and has merely increased the wealthy’s advantage. Calls for a consumer-led recovery will draw on their increased spending power, and when that spending shows up in the data it will mask the fact that more people in America are making do with less—suffering the new frugality at the conspicuous spenders’ expense.


Is it safe to say that the wealthy have managed to game the system yet again and avoided a significant loss of wealth, while maintaining sufficient access to credit? If in fact that is the case, a case could be made for a consumer lead-recovery, granted one that is massively skewed to the 10% of the population which consumes 42% in the US.


At that point, all the talk of the era of frugality will be over, even though more of us will be living it. What the Zero Hedge scenario means, as some others have remarked (now I can’t find the links, grr), the U.S. will become more like Brazil—a wealthy elite, with a monopoly on the social power that comes from the power to spend in a consumer society, living in gated communities with elaborate collections of luxury goods, with bodyguards for their children and so on, while the rest of the population is increasingly impoverished.


It reminds me of Baudelaire’s The Eyes of the Poor, the poor family staring in at the lovers in their leisure at a “dazzling” cafe, whose decorations depicted “all history and all mythology pandering to gluttony.” Increasingly, we are becoming that poor family, spectators of the heroic consumption of the upper classes. Thanks to the inexpensiveness of media entertainment, we consume the cheap images of their class status and derive what gratification we can.


The eyes of the father said: “How beautiful it is! How beautiful it is! All the gold of the poor world must have found its way onto those walls.” The eyes of the little boy: “How beautiful it is! How beautiful it is! But it is a house where only people who are not like us can go.” As for the baby, he was much too fascinated to express anything but joy—utterly stupid and profound.


Meanwhile economic forces cement the boundary between us and those in the cafe enjoying the splendor, continue the redistribution upward, making sure we can do nothing but marvel at wealth.

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