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Incurable Consumerism

So I had hoped that one good thing that might possibly come out of this economic collapse would be the end, or at least, the amelioration, of our culture of consumerism here in America. In recent months, we have seen the national savings rate jump from about -2% (where it had been for years--no joke) to about +5% (most countries average about +10%). This suggested than many Americans were beginning to show some common sense--don't spend what you don't have, but instead start saving so you will have something to spend later.But it seems that we are beyond the reach of reason. This judgment was forced jarringly upon me by the recent issue of Newsweek, the cover of which declares: "I WANT YOU! To Start Spending: Invest in America, Before it's Too Late"

Of course, I assumed at first that it was just a parody of what the politicians have been saying--we've all heard Obama and the rest talk about how we have to get credit flowing again and Americans spending again. But no, this was no parody. The headline of the story inside said "STOP SAVING NOW!" And no, this was no parody either. Within the article, the columnist explained that while no one wanted to go back to rampant credit-driven speculation, nevertheless, we needed to be willing to get back into debt, and to start "investing in America" by spending. I blinked a couple times and reread the offending sentences, and found that yes, indeed, we Americans were being told: "No, don't save, but start investing instead, which means spending." Now, I know I'm not a certified financial planner yet or anything, and my education in economics has been a little informal, but my understanding was that investing was what you did when you saved, and spending is what you did when you didn't want to save/invest. However, so thoroughly have we become convinced that endless consumerism is the only way that we have survived that we have inverted the terminology--investing is now what you do when you spend, and saving is what you do when you're too stupid to spend/invest. I fear now that, as soon as economic conditions improve marginally, Americans are going to gleefully leap back on the train of rampant consumerism until they finally drive right off a cliff (assuming this isn't already the cliff.

PS: My cynicism was mollified somewhat by the appearance of a Time cover story this last week called The End of Excess, which though I didn't take the time to do more than glance at it, appeared to be taking the opposite tack of the Newsweek piece. I shall henceforth get my dose of standard vapid American public opinion from Time, rather than Newsweek


I think you've missed the nub of the article:

Nobody is advocating a return to the debt-fueled days of 4,000-square-foot second homes, $1,000 handbags and $6 specialty coffees. But in our economy, in which 70 percent of activity is derived from consumers, we do need our neighbors to spend. Otherwise we fall into what economist John Maynard Keynes called the "paradox of thrift." If everyone saves during a slack period, economic activity will decrease, thus making everyone poorer. We also need to start investing again—not necessarily in the stock of Citigroup or in condos in Miami. But rather to build skills, to create the new companies that are so vital to growth, and to fund the discovery and development of new technologies.

It is not for nothing that the "paradox of thrift" is called a paradox. Precisely what is so paradoxical about it is that being a good and rational saver at the microeconomic level causes there to be a recession (i.e., shortfall in aggregate demand) at the macroeconomic level--thus causing our savers to be even worse off than if no one had been saving at all. It's a collective action problem.

The author is right that a pick-up in demand--i.e, spending--is a necessary condition for the economy to get back on track. And it's not as if he's advocating that people make poor spending decisions, or that they try to buy things they can't afford. Rather, I think he's saying that whereas pre-bubble we were going crazy with risk, now the pendulum has swung too far the other way, and those in a position to get the ball rolling again--the Rockefeller's of our day--should, uh, start rolling that ball (I got a bit smothered in my own metaphor there).

Anyway, that's my take.

I like the new blog template.

April 6, 2009 at 8:08 AM  

Once again, I think you take violent rhetoric as being more oversimplistic than intended. I did read that part of the article. And I do understand the paradox of's a big problem, to be sure. On the other hand, the only way a debt-fueled excess can really be dealt with is by an overreaction in the opposite direction, which will be long and painful. You can't try to short-circuit the correction and try to start spending your way back into a recovery before consumers have really, really pulled back and started saving again. Right now, we're not nearly back to a healthy savings rate, and the fact that 70% of our economic activity is consumption does not mean "Well, dang, we'd better start consuming again" but "Well, dang, we need to fix that percentage, so, although it may be long and painful, we need a major, long-term pullback in consumption.
Anyway, that's my take.

April 8, 2009 at 5:55 AM  

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