The GDP figures for the fourth quarter of 2008 are something I’ve never seen as an adult — a decline in growth of 3.8 percent (the number is by no means final either, and is susceptible to being revised later). It’s hard to cheerlead the economy with numbers like these, but The NYT gamely tries with its headline (“Steep Slide in U.S. Economy, but Not as Dire as Forecast “) which stands in stark contrast with the lede:
The United States economy shrank at its fastest pace in a quarter century from October through December, the government reported on Friday, in the broadest accounting yet of the toll of the credit crisis. Consumer spending and business investment all but disappeared, and economists said the painful contraction was likely to continue at an alarming pace well into the summer.
Felix Salmon thinks the timid consumer has become the new normal:
I don’t see any sign of a recovery any time soon: America’s culture of competitive consumption has disappeared entirely, and it’s not coming back.
I walked past a brand-new high-end casual menswear store last night, and it struck home to me how much things have changed in the past few months. It was always a bit weird that anybody would pay hundreds of dollars for a flannel shirt, but somehow, such shops managed to survive during the boom years. I certainly wouldn’t want to be the owner today, though, or even in the years to come, should the store survive that long.
Merrill Lynch analyst David Rosenberg (who has been calling a consumer-led recession for a while) has a similar view in this dire commentary. He argues that the debt overhang from the boom must be eliminated before there is a recovery. Consumers, therefore, will be forced to save rather than spend. Rosenberg goes further and posits a lingering shift in consumer mentality (at least for baby boomers) that outlasts this necessary debt elimination:
in this post-bubble, mean-reverting process, the ability for policymakers to re-create the credit cycle, reinflate asset values and ignite a consumer-led recovery is going to be thwarted by secular changes in attitudes towards credit, savings, discretionary spending and homeownership. In other words, even after enough debt is paid off, the baby boomers’ spending years will be focused on putting their money in the coffee can.
Rosenberg elaborates on the “secular change” in consumption habits he expects, the shift from frivolity to frugality (already a popular theme in the mainstream press).
There are lags between changes in household net worth and changes in consumer spending patterns, and the $13 trillion loss to-date is a harbinger for sustained consumer spending contraction in coming years. The reason for the lags is because households only change their behavior after a shock, negative or positive, if it is considered to be permanent or at least semi-permanent. For example, the institutional changes over the decades in 401k plans and matched employer pension contributions helped reduce the steady 10-12% savings rate of the 1950, 60s and 70s down to 8% by the late 1980s. But it was the increased boomer reliance on asset inflation for savings rather than organic income that drove the savings rate down to 2% by the time the dot-com boom was in full swing in the late 1990s.
If Salmon is right about the end of the hundred dollar flannel shirt, then maybe this depression thing really isn’t all bad. But will the same marketing ideology merely be used to promote something cheaper for the time being? I’d expect the consumerist ideology to be more tenacious than that — when we can’t spend, we don’t immediately adapt to that new reality; we just experience want more painfully. We probably haven’t been in a depression mind-set long enough for our consumer behavior to change in a fundamental way and are still in the lag period Rosenberg mentions. Collectively, American consumers could be overreacting in the short term, cutting back like crazy with the assurance that we can resume spending stronger than ever when the storm passes. (Kind of like trying to catch up on sleep all at once on Saturday rather than changing one’s habits to get more sleep every night.)
Rosenberg suggests we may well come to accept our reduced means as a permanent condition just as economic trends are reversing, causing our recession mentality to persevere and act as an added drag on recovery. BUt virtually every form of public discourse is aligned against that possibility; the commercial media may be too robust to ever allow us to resign ourselves complacently to a penny-pinching mentality.
In other words, we may never reach the soul-searching stage, in which we reject the entire set of social relations that can produce a $100 flannel shirt or makes $300 jeans seem normal. It may be easier simply to suspend our consumerist hopes, manifest in so much of the material belongings that surround us, rather than interrogate those hopes and reject them for a new way of life. The competition that had been taken place through consuming has shifted to a more fundamental level — for now we are competing to hold on to jobs. Maintaining what we had already achieved will probably feel like relative progress. But the useless ethic of status competition and possessive individualism, the endless war of all against all that capitalism breeds as an inevitable by-product, won’t disappear. We are still likely to regard any cooperation brought on by hard times as a type of humiliation, even if we are grateful.
Consumerist society has for too long emphasized possessions as the route to social recognition, not collaboration. The tangibility of objects seems to substantiate the argument — the inarguable presence of more stuff seems to testify to a richer life, and marketing gives all that stuff rich meanings and fully developed fantasies we can readily enter into vicariously. And our ability to soberly question consumerism’s role in our lives is hampered not only by our hedonism (the familiar and common-sense-seeming logic of “more is better”) but by the persuasion industry’s relentless collective efforts to invalidate ways of life that are not reliant on consuming products. Lifestyle magazines and the styles sections in newspapers help by making frugality into a trend that is marked by buying certain products and shopping at certain stores. The underlying message: We can spend less but remain consumers. So we don’t need to fear.
Taking its cue from the press, the ad business will try to sell us anticonsumer goods, goods that paradoxically promise to fit in to our new recession-minded lifestyle. This not only helps ad firms continue to sell ads in a downmarket, but also helps ads maintain their prominence in the sum of our daily thinking. Ads preserve a lever in our minds, so they can reorient us to luxury when the time comes. Then it will be morning in America all over again.