"The era of frugality" redux redux
I'm generally skeptical about proclamations of the "new frugality," because I'm not convinced that we know what to do with ourselves if we are not shopping. Consumerism, as an end in itself, has infiltrated most activities, sapping away their intrinsic appeal and making them seem reliant on consumerism, rather than vice versa. Deliberate frugality has a certain novelty appeal, but when that wears off, it will probably feel like privation, not sane living within reasonable limits.
But when viewed through the lens of economic data as opposed to the requirements of consumerist ideology, the potential for frugality looks quite different. In this paper (pdf, via DeLong) economists Christopher D. Carroll and Jiri Slacalek claim that the consumerism party is over:
our best guess (illustrated below by forecasts from a simple
model) is that the drop in overall consumption spending will not be speedily reversed; indeed, we project that the saving rate will rise a bit further from current levels before stabilizing somewhere not far below the saving rates that prevailed before the era of financial iberalization that started in the late 1970s. But we would not be greatly surprised if the saving rate ultimately rises even more than in our most extreme projection. In answer to the question in our title, our view is that American consumers are not merely resting from their former role as the world’s champion consumers, they are permanently reforming their spending patterns, in response to the end of the period of ever-more-available credit that fueled the unsustainably high spending of recent years.
For them, the key factor in the advance of consumerism has been credit availability; implicit in their argument is the idea that consumerist ideoogy flows from such factors -- the credit is there, and then its abuse is rationalized by a consumerist ideology. Perhaps. But should we expect a painful lag as the new base economic situation gives birth to a new consumer mentality? Won't we fight this sudden need to save, having been trained to neglect it? Or is the economic crisis truly traumatizing the spender in us, obliterating it?
Gluskin Sheff analyst David Rosenberg, who was right about so much of what happened in the housing market, argues (pdf) that the American economy had a "consumption bubble," which now makes an actual "era of frugality" inevitable. As he puts it, "Getting small is the new trend," but that seems a bit misleading. He doesn't make the case that people are excited about consuming less. His argument relies more on the fact that Americans accumulated so much stuff during the past decade of consumer credit expansion.
what makes this downturn different and more troublesome than its predecessors is the downside potential for consumer discretionary spending. The level of non-housing durable goods assets on household balance sheets -- even after adjusting for the increase in the population and inflation, so we are looking at the ownership of “stuff” -- is almost 20% higher today than it was during the last consumer recession in 1990-91 and 40% higher than the consumer recession of the early 1980s.
People have a lot more stuff now, as we speak, so presumably they will find it much easier to maintain a lower level of consumer spending going forward. But that assumes that people were buying stuff because of the stuff, and not for the thrill of the buying -- the rituals of shopping, which culminate in acquisition but then must be started anew to provide the same satisfactions. The stuff we already own is sort of pointless in that respect; what the recession perhaps will do is reacquaint us with the pleasures available in the stuff we have already amassed. Maybe we will set about romanticizing the thrill of discovery in our own closets rather than in retail world. But for all that stories about the joys of frugality, I'm not convinced this is actually happening. It still seems that saving is regarded as "painful" and that increased spending will be regarded as a return to health, both for individuals and for the macroeconomic picture.