Opinion

Gregg Easterbrook

Slimmer wallets, richer lives?

June 2, 2010

For at least a generation, commentators have declared that Americans buy too much and borrow too much, chaining themselves on a stressful treadmill of work-and-spend. Wouldn’t it be nice, this thinking went, if we learned to buy a little less and save a little more. Maybe then we’d be happy.

We are about to find out – because hidden in economic data is a mild decline in the American obsession with spending money. People are spending somewhat less, even when unemployment isn’t an issue. Americans are paying down credit-card debt, the worst kind of debt, while saving somewhat more. As growth rebounds, we may awaken to a new economic reality in which consumer demand mildly slackens on a long-term basis. This is exactly what social philosophers said would be good for us!

Consider:

–According to Federal Reserve figures, household debt in the United States dropped slightly in 2009, the first drop since 1945. Some of the decline was keyed to housing foreclosure (which can eliminate mortgage debt), but even taking this into account, household debt went down. Credit is tight – but maybe, as well, Americans are beginning to learn to resist that urge to buy like crazy right now.
–The Bureau of Economic Analysis reports that personal saving as a percent of disposable income hit 3.6 percent in April, the highest such figure since 1998. In April, Americans saved $399 billion – money they might have spent, but didn’t. This seems significant because it is the employed who have extra income they decided not to spend.
–The mean amount a household owes in credit-card debt is now $3,900, down from $4,900 a year ago, according to this Associated Press-GfK Poll. This suggests that Americans are becoming cautious about credit-card use – which is not only smart personal finances, but likely to reduce money stress.
–Since 2007, retail sales are down about 6 percent; household income is down about 1.6 percent in the same period, so retail sales have fallen more than income. Prior to the decline that began in 2008, retail sales had risen 27 consecutive years.
–Last November, the typical Black Friday shopper spent $330, versus $390 (in today’s dollars) in the peak year of 2006.
–Electricity consumption declined from 2007 to 2009, though has risen slightly this year. Unlike gasoline demand, which trends up or down roughly in sync with larger economic movements, electricity demand had been rising steadily since World War II ended. The recent decline in electric power demand began before the 2008 financial-sector meltdown. Now the Energy Information Administration projects – see the table on page 5 — that per-capita U.S. energy use will remain in shallow decline for at least the next two decades.

Obviously these leading indicators can’t be driven solely by an outbreak of awareness of the virtues of not over-spending. Conservation technology is a big factor in electricity demand, for example, while last fall’s Black Friday occurred at a time when consumer confidence was low. Confidence is back, so perhaps Black Friday 2010 will be crazy. But for a long time – basically, for the lifetimes of readers of Reuters.com – trend lines involving materialism, spending and personal debt have almost always been up. Now that’s moderating.

Shouldn’t this mean a less-frantic lifestyle awaits us – more walks in the park or picnics, fewer day-spa trips and fancy meals? Social commentators (including me, in my 2003 book The Progress Paradox) have been saying Americans would become happier if they spent somewhat less and saved a little more. That appears to be happening. Is it a blip, or the beginning of a long-term transition?
Now consider two other forecasts.

The Organisation for Economic Cooperation and Development, with a reputation for being guarded, just said the global recession has concluded and that growth is back. But not rip-roaring growth. Check the numbers the OECD projects. They represent “slow growth,” exactly what commentators of the go-go 1990s said would cure many ills of society. When strip malls and townhouse blocks were rising so fast it made your head swim, slow growth sounded awfully good. If what you favored was slow growth, looks like now we have it. Perhaps without ever meaning to, the United States and the European Union have embraced a slow-growth future.

Meanwhile Christina Romer, President Barack Obama’s chief economic advisor, believes 9.9 percent unemployment does not result from any structural change in the economy, rather, from soft demand. In that case, assuming Americans voluntarily are moderating demand and saving more, employment may recover much more slowly than the economy overall.

A guiding assumption among economists and policy-makers has been that replacing factory employment (which is declining owing to rising productivity, not offshoring – factory employment is down in China, too) is the leading economic challenge to be faced. If consumer demand has entered long-term mild decline, entry-level employment may become the first problem. Fewer big-box stores will be good for our souls, bad for the job rolls. Our psyches may be better off with less spending, but retail employment and job creation may be slack for a long time.

POINT THAT DIDN’T QUITE MAKE THE MAIN COLUMN:
Total U.S. household debt in 2009 was $13.5 trillion – almost exactly the same number as U.S. federal debt in 2009. This must mean something. If only I knew what!

Comments
14 comments so far | RSS Comments RSS

People were only doing what they were told to after nine-one-one, namely to spend their way out of the terror crisis. Did it work? You tell me.

Posted by HBC | Report as abusive
 

HBC, I think you’re oversimplifying the matter. Consumer debt has been on the rise for years. From 1980 to 2001 (before 9/11), consumer debt went from $355B to $1.7T. It stands at $2.5T in 2009.

Americans have had a buy now-pay later attitude for years. I bought furniture at Rooms To Go that way throughout the ’90s. 0% car loans, anyone? Foreclosures are happening today because people refinanced their way out of credit card debt in the ’00s.

Only when Americans learn to live within their means will prosperity be within reach. Only when American government learns to live within its means will financial security occur.

Peace.

Posted by disneyoldguy | Report as abusive
 

8 million homes aren’t paying their monthly mortgage nut. 90 million homes in the US have mortgage. We just launched a competitor to Facebook at http://storyburn.com

Posted by STORBURNcom11 | Report as abusive
 

This is a great piece, but the ultimate question is can THIS model of capitalism create growth again without everyone living in a pit of debt? What kind of ‘wealth’ is it that involves owing loads of money? The answer,I suspect, is wealth for a tiny minority…whose arguments in favour of the system become more spurious every day.
Life isn’t richer without money – but it’s a lot richer when one stops wanting BIG money. Big money aspirations mean heavy use of credit. Capitalism needs a new growth driver…and not one based on shareholder profit/’the numbers’.
http://nbyslog.blogspot.com/2010/04/offi cial-economy-urinating-into-ocean.html

Posted by nbywardslog | Report as abusive
 

It is puzzling that saving is such an uncommon notion to anyone. Having been raised by Depression-era parents, money was never used for anything than what was needed, and being poor, we couldn’t afford what was needed. Why is everyone so confused about spending and saving? When I raised my own children, we had a rule when they received money gifts, spend half, save half. Today, our 24-year-old son practices living within his means and pays his bills. Imagine that!

Posted by alwayslearning | Report as abusive
 

America runs on debt. Without it, the money machine stops. Americans have simply modeled their economic lives after the way Government and big business (including banking) have been doing business for decades. It’s a trickle-down-lead-by-example effect. It seems highly hypocritical for the powers that be to scold the populace for doing exactly the same thing they’ve been doing for years. “Do as I say, not as I do” doesn’t work, never will.

Posted by GLK | Report as abusive
 

Insightful article and excellent blogs.
Go to garage sale or to Salvation Army and you can see how people spent their money and after a while, they need to dispose. Too much stuff. If you travel overseas and if the waiter gets to know that you are an American, he gives more extra service expecting the generous American tip.
Being an American is a blessing. Our land is immense and very rich, fertile, productive and no country can match. Our talent or human resource is even more unreachable by any other country. And that is why a lot of people from all over the world like to come to America. America is rich. Indeed.
My daughter and I went to McDonalds and we spent $8. My daughter said, “That’s it”. And I answered back, “Honey, that’s not the point”. And I showed her the $3.98 that we are charged for soda. We Americans can afford a lot of stuff but is it really necessary? Do we really need 6 pairs of shoes? Well, my wife has 6 Nine West and about 6 “other brand” bags. These are just the small stuff. Folks in Houston drive to work in a Suburban. A friend of mine lives in a 3,200 sq.ft. house a 30-yr mortgage of about $3,600 per month. We just say, I can afford it.
For folks who cannot afford but has a way to get stuff by credit or easy loan, that’s when the trouble starts. America, we have a lot of work to do. We need to curb our unnecessary spending and use the money for a better cause and genuinely necessary stuff.

Posted by NSSales | Report as abusive
 

For the past 30 years I have watched the rise of the current money culture associated with the rise of the stock market, I have read commentaries about what motivates people to spend and compared them with my own reasons. Why is it no one comments on the influence of shame on spending? The shame pressures on me and my family, the punishment for not spending, was traumatic. Now that it is the spenders that bear the burden of shame, I can walk the streets at peace, and I rejoice that I don’t have to spend to avoid abuse. Perhaps others share this experience.

Posted by eichelberger | Report as abusive
 

This trend hints at a promising future, if it continues.

I’m curious why you claim credit card debt is “the worst kind of debt.”

Posted by drewbie | Report as abusive
 

Great, thanks for stating the obvious. I would suggest you read Elizabeth Warren’s book. You might be suprised to find that middle class Americans highest increase in spending over the last couple of decades has been on housing, childcare, and healthcare, not on material goods. The last time I checked these were not optional. Rampant materialism is probably not good for any society, but if you preach the about the free market, it is hypocritical to talk about how materialism is bad. I bet if you talked to CEO’s of all major corporations in this country they would disagree with you. Our form of capitalism requires people to buy crap they don’t need. Without it, we would experience economic collapse. The last time I checked folks in your camp want small government, no regulations, and no hold bars capitalism. Guess what? For that model to work, people have to spend money on stuff they don’t need. You know what would give you some credibility? If you were actually consistent. Never mind, you probably don’t know what that word means.

Posted by BB1978 | Report as abusive
 

The disconnect between reality and theory continues.
Ask yourself how many people you know can buy a house($100,000) or a car ($30,000) or a washer($500) and only use cash.

Posted by user4301 | Report as abusive
 

“Slimmer wallets, richer lives?” What, are you saying that citizens should embrace rampant stagflation, reduced buying power, stolen personal wealth, and enforced servitude to reckless government debt, with an hypnotic smile on their faces? “Thank you, sir! May I have another?”

I’ll take my fat wallet and save more, any day, before I take a slim wallet and save more.

Also, for those of you who think the captains of capitalism have generated this vast wealth sucking vacuum in the absence of government intervention, you are wrong. It has been fostered with the complicity of government, and both parties in it. The trick, of course, is to get as many people as possible in debt to you-get that monthly payment, and get it up front if possible (e.g. our secondary education system) any way you can.

Posted by Soothsayer | Report as abusive
 

Debt is slavery. Less is more.

Posted by gh56 | Report as abusive
 

Families that have to work three jobs just to pay bills have probably done all the cutting back that can be humanly expected of them. While it’s important in general to spend wisely not prodigally, though stating the obvious, preaching to Americans about less consumption sounds a lot like telling Soviet Russians to have a nice Stalinist day: empty, at best, patronizing at worst.

Posted by HBC | Report as abusive
 

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