Editor's Choice

The credit experience

More and more, it seems as though a psychological corner has been turned. There is a growing sense that the consumer-credit bubble is over, and as a result the gap in lived experience between the rich and the poor (who lived richer thanks to credit) are about to widen, as Steven R. Waldman explains here:

Of course, the poor spend more than they earn primarily by taking on debt. In the halcyon days of 2006, that was no problem. Credit flowed like honey, and what could always be refinanced need never be repaid. It's a wonder we didn't do away with the whole "money" thing entirely. If you can spend all the way down to negative infinity, it hardly matters whether your starting wealth is one dollar or a billion dollars. Why keep track?

But, alas, people did keep track. They also stopped lending to people who might not be able to repay, people who, you know, spend more than they earn. Which means, even putting aside the terrible hardship of bankruptcy, or struggling to pay down old loans, all of a sudden the lived experience of inequality must come very much to resemble those unpleasant income inequality statistics. Are we cool with that?

In a way, the credit crisis comes out of a tension between the broad-middle-class America of our collective imagination and the economically polarized nation we have in fact come to be. We borrowed to finance an illusory Mayberry. The crisis won't be over until this tension is resolved. Either we modify the facts of our economic relations, or we come to terms with a new America more comfortable with distinct and enduring social classes....

I'm sure this is a bit polemic, but I don't think it is much overstated. Credit was the means by which we reconciled the social ideals of America with an economic reality that increasingly resembles a "banana republic". We are making a choice, in how we respond to this crisis, and so far I'd say we are making the wrong choice. We are bailing out creditors and going all personal-responsibility on debtors. We are coddling large institutions of prestige and power, despite their having made allocative errors that would put a Soviet 5-year plan to shame. We applaud the fact that "wage pressures are contained", protecting the macroeconomy of the wealthy from the microeconomy of the middle class.

For the rest of us, as we are weaned off the tendency to live beyond our means and keep up with the levels of consumption touted in the culture industry as normal, we can now embrace thriftiness, the Aldi alternative.

Accordingly, thrift is beginning to trump branding in retailers' efforts to reach customers, if you take anecdotal evidence like this post seriously -- it details efforts Whole Foods is making to seem cheap, and has a link to an article about Target's suddenly struggling because of its "classier" image.

As Target released its second-quarter earnings Tuesday, the Minneapolis-based discount retailer said it will not meet long-term expectations if consumer cutbacks continue. Part of the problem is that, much as Target has tried to trump up the "pay less" side of its slogan, consumers don't believe it.

"The perception is that because it's more visually appealing than Wal-Mart, that prices are higher," said Stephanie Hoff, a retail analyst with Edward Jones in New York. "They're just going to have to figure out a way to communicate that to their customers better. They're trying to do that, but it could take some time."

Also, efforts to restigmatize borrowing are starting to permeate economic commentary. There is a general sense that consumer behavior needs to adapt to dwindling credit and make do with less immediate gratification. Easy credit enabled more people to participate in a sort of protracted drama of shopping, in purchasing big-ticket items as a kind of experience. Marketing theory more and more began to argue that the experience was more significant to consumers than the purchased good in the end, and retailers, recognizing the superior margins to selling experiences to goods, embraced this ideology and emphasized it. Brands took on new significance as the starting points for consumer fantasies, and advertising worked to make the brands into more effective triggers for those fantasies.

But without easy credit, the model no longer works as effectively. Daniel Gross, too, proclaims the end of the credit-card-fueled economy in this Slate article. "The endless willingness of lenders to lend and borrowers to borrow—...kept the consumer economy humming uninterrupted from the early 1990s, straight through the brief recession of 2001, until the credit meltdown of 2007." But now

Retailers who freely extended credit to any customer with a pulse are deploying bean counters armed with sophisticated software to sniff out potential deadbeats. And when higher rates and fees don't deter their borrowers, credit-card companies resort to slashing credit lines. "We predicted there would be some degree of spillover from the mortgage meltdown," said Curtis Arnold, founder of CardRatings.com. "But the credit line reductions by big credit card companies in the last six months have been fairly unprecedented."

Gross notes that the absence of credit confronts consumers with the "pain of paying," the reality of what things actually cost, which is an obvious deterrent to spending. This inhibits the popular notion that shopping is an "experience" rather than a transaction.

Consumers may have to recalibrate their expectations of what a shopping experience is and adapt to consuming unbranded goods. No more will shopping seem designed to single individuals out, flatter them and encourage them to see the retail universe as fashioned specifically for them. Shopping is more likely to be the semi-alienating Wal-Mart or Aldi experience, where you wander through piles of unbranded goods in cardboard boxes on the floor, than the repeat engagement with brand-inspired fantasies. Perhaps, we will shop less to foster identity than to simply acquire more fundamental necessities, and identity could be developed in some other social arena outside of amassing possessions and brandishing brands, through some other means than being catered to by retailers and orchestrating a lifestyle through curating and displaying the correct set of belongings.

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