My very favorite casualty of the reset – conspicuous consumption. The New York Times reports:
In just the seven months since the stock market began to plummet, the recession has aimed its death ray not just at the credit market, the Dow and Detroit, but at the very ethos of conspicuous consumption. Even those with a regular income are reassessing their spending habits, perhaps for the long term. They are shopping their closets, downscaling their vacations and holding off on trading in their cars. If the race to have the latest fashions and gadgets was like an endless, ever-faster video game, then someone has pushed the reset button…
Still, economists point out that the Great Depression created a generation of cautious savers. The longer the downturn this time, they say, the more likely it is to change financial habits permanently.
“Though the recession was always talked about in economic terms, we felt really strongly that, in fact, it was a crisis of culture,” said Tracy Johnson, research director for the Context-Based Research Group, a market research firm in Baltimore that views the recession as a rite-of-passage that will reorder consumer priorities. Ms. Johnson has advised clients to focus on quality rather than quantity. Malls redecorated in screaming red “sale” signs are not the way to go, she said, because “if you just give people the opportunity to buy more, you’re not matching up to where their minds are…”
Carol Morgan, who teaches law at the University of Georgia and whose husband has a private law practice, said she felt a responsibility to cut needless spending. “That is probably something that is a prudent thing to do in any event, but particularly now I see it as the right thing, as the moral thing to do,” she said, adding that she also hoped to increase her charitable giving. “Before, extravagance and opulence was the aspiration, and if we can replace that with a desire to live more simply…”
Any sharp decline in consumer spending will feed on itself, said Juliet B. Schor, an economist at Boston College and the author of “The Overspent American: Upscaling, Downshifting and the New Consumer” (Basic Books, 1998). Typically, people spend when those around them are spending, but in a downturn, the need to compete evaporates. “You can stay right where you are without falling behind,” Ms. Schor said. Consumers’ focus may have shifted, she said, from striving to catch up to those above them to contemplating the fates of those below them.
April 3rd, 2009 at 12:15 pm
Indeed – My own favorite indicator has always been sports cars. In the last major housing and employment crash of 1991-92, monstrous Japanese sports cars such as the new Supra, new Acura NSX, and a new RX-7 were announced. Some were built, and few were bought. People with hot sports cars drove them less or hid them for a while (my own used Porsche 914-6 and used M3). If yuo look for classic sports cars from the 1981-83 period, you won’t find any. The Rabbit GTI was the sports car of that bad period.
In the 2001 downturn, I noticed conspicuity was actually encouraged. The culture did not restrain people from buying and driving discretionary sports cars. You should never go by one indicator, but the failure of this one to register caused me to disbelieve that recession had ended. I treated the supposedly good years as if the whole society was on a “bear market rally” tear and just held my breath waiting for inevitable. It took 8 years of bubble-making, but now we’re seeing the behavior patterns more reliably associated with a real downturn.
April 3rd, 2009 at 2:16 pm
If yuo look for classic sports cars from the 1981-83 period, you won’t find any. The Rabbit GTI was the sports car of that bad period.
A great deal of that has nothing to do with economics, and everything to do with what else was happening at the time: brutal emissions regulations that automakers didn’t know how to meet without gutting performance, the energy crisis and expensive gasoline, safety regs that again the automakers were still adapting to, CAFE standards, etc.
It took time for the automakers to figure out how to get mileage, performance, safety, and quality. They didn’t have it in the early ’80s. Took them another 15 years to really get it all together.
April 3rd, 2009 at 4:34 pm
Coming off of 30 years (more or less) of really conspicuous consumption, I’m personally ready for some austerity. Not that I’m a conspicuous consumer, but I do have moments of irrational exuberance.
One thing that disappoints me about Obama is that he’s reacting to the collapse of our personal profligacy with a government one. I know after Reagan and two Bushes, libs think that we’re underinvested in many public services, but that is largely NOT what Obama is spending money on.
Austerity, which COULD include tax increases, but which certainly would include cutting entitlements, would have a lot of appeal to me. Call it Bob Rubin II.
Would that just be a re-do of Hoover (who after all cut the budget and raised the top marginal tax rate to 60%, as well as rasing tarrifs)? I’m sure that would be an argument against it.
April 3rd, 2009 at 6:53 pm
“It took time for the automakers to figure out how to get mileage, performance, safety, and quality. They didn’t have it in the early ’80s. Took them another 15 years to really get it all together.”
I would argue that American automakers never got it all together. OK, maybe safety, 1 out of 3 — not enough. If they had taken the other three seriously rather than trying to figure out how to get around them, we couldn’t be looking at their collapse today.
The last decent American car I owned was a 1953 Plymouth pickup in the 1960’s. We own Japanese and German, but I drive American rentals and they’re poorly designed junk by comparison. I’ve even driven rented super-SUV’s and they’re no improvement over my old pickup.
April 4th, 2009 at 7:40 am
Micheal, I didn’t say American automakers. I said automakers.
I had an ‘83 Honda Accord. It had 80 horsepower. By today’s standards, it was a gross polluter and a deathtrap (no airbags, no side impact beams, etc.). It was quite a bit smaller than today’s Honda Civic. It got about 30 on the highway, no better than today’s Accord.
The point is that EVERYBODY’S vehicles from the ’70’s and ’80’s were pretty much crap. It was just a bad time, becuase of government regulations and energy prices.
There are some exceptions. The Mercedes 300TD is an awesome vehicle, and there are many still on the road (diesels never die, and the cars are built like Panzers). A Porsche 930 will still set you back 30 grand on eBay. But that’s about it.
I was surprised to get a 2007 Honda Accord V6 from Hertz the last time I was in Houston. It didn’t do anything for me. I’m really off of Hondas, I really don’t like where they’ve gone the last 10 years or so since I owned one.
And German cars are just eeeeevil. Especially black ones.
April 4th, 2009 at 9:32 am
I remember about 5 years ago my co-workers chided me for not financing a television set.
At the time, my mind reeled at just the thought of financing a FREAKING TELEVISION SET. Now, I have no car payments (and I was chided for buying Korean) and have paid nearly 50% of my mortgage off.
Austerity isn’t all that bad a deal, especially seeing the people who bought 3500 square foot houses, leased a Lexus SUV, and financed a widescreen plasma tv.
I’m sorry, but here’s the world’s smallest violin.
As long as we’re in fantasyland, I’d rather see a wealth tax replace income tax and sales tax. First, sales tax hits the poor the hardest. And taxing income? Don’t we want to encourage work? If we taxed wealth, we could tax the hedge fund investors and the like who have made out like bandits over the past decade (mainly because they basically ARE bandits).
Most thinking people should have realized that when the savings rate dipped into negative territory a few years ago, that should have been cause for alarm.
Michael Phillips was prescient in his 2006 book, along with many others who were routinely shouted down and mocked by the chattering classes and newly minted yuppies.
I had one real estate investor tell me that “housing prices never go down” a few years ago and told me I was a fool for not investing. I think he must have lost $400,000.00 by now.
April 4th, 2009 at 9:39 am
Buzzcut, I’m not for cutting entitlements as much as I would be for reinventing them. I don’t understand why we can’t pay people for work. In other words:
1. Anyone who is on welfare and can’t find a job, let’s pay them to perform child care or build infrastructure. Hell, someone has to do these jobs and I don’t want welfare to be people laying around. Assuming the folks in question are able-bodied of course.
2. I’d like to see the minimum wage raised to the point where the working poor are not collecting ANY government benefits to make up the difference. Right now, in my opinion, Wal Mart and McDonalds get to pay their employees less money and we all make up the difference. I’ve personally seen K Mart fill out welfare and other government assistance forms for employees. I’ve heard similar stories from Wal Mart and fast food places and I believe them. I see no reason why you or I should pay taxes to essentially support mega-corporations.
I guess what I’m saying is we should work smarter, not harder.
April 4th, 2009 at 10:30 am
I said elderly entitlements. Welfare is not bankrupting this country. Medicare and Socialist Insecurity are. Long term, those programs are really unaffordable at current benefits levels.
Consumption taxes like the sales tax at least discourage consumption.
How is a wealth tax really any different than a capital gains tax. In the end, aren’t they identical? You just pay the wealth tax every year, instead of just when the asset is sold.
What’s the biggest problem with a wealth tax? How do you value the asset i.e. mark to market. How pissed would you be if your owned mortgage backed securities, paid taxes on them, and then they cratered? Do you get your money back on the taxes paid?
April 4th, 2009 at 1:31 pm
Part of any “austerity” program has to include taking a meat-axe to the Pentagon system. Something tells me that we can somehow scrape by on “only” $250 billion a year for “defense” expenditures. Doing so would go a long way to solving the entitlements “crisis” (which doesn’t really exist anyway, and is essentially just a function of rising health care costs). So, cut the Pentagon budget, deal with health care costs. Consistent conservatives should like the idea of cutting the Pentagon budget, since after all it is part of the state. I don’t anticipate that happening however, alas.
April 4th, 2009 at 3:43 pm
Doing so would go a long way to solving the entitlements “crisis” (which doesn’t really exist anyway, and is essentially just a function of rising health care costs).
Not even close. Boomer retirements are driving Medicare and Socialist Insecurity costs. Health care inflation is not the primary driver (not that it isn’t important, or that Medicare’s non-managed care practives don’t drive up costs throughout our healthcare system. It’s just not the main driver).
As for the military, after 8 fat years, I’m sure that there’s much to cut there as well, no argument from me. Hopefully Iraq will allow drawdowns as well. But our problems are elderly entitlements, much of which go to the middle class and even the wealthy. This is not the 1990s, and just cutting the military is not going to get us out of this mess.
In any case, if we’re really going to do austerity, yes, the military must be cut as well. No question.
April 4th, 2009 at 9:52 pm
I’m glad we agree on cutting the military. Hundreds of billions per year could be siphoned off the Pentagon system (and the NSA, CIA, FBI, military intelligence, and other aspects of the “right hand” of the state), and devoted to other purposes – such as shoring up social security. And yes, it is socialist, but to me that is a good thing. Nothing wrong with a little social democracy here and there. It’s called _social_ security for a reason – i.e. we should care about the disabled widow down the street. I’d like to see some definitive citations documenting the causes of a supposed entitlement crisis. Please, nothing from CATO, AEI, or the like.
April 4th, 2009 at 10:45 pm
Clearly, we have to save social security and medicare, not demolish them.
How about bouncing the top 1% off the system entirely? Let’s face reality, Bill Gates does not require social security.
April 5th, 2009 at 10:59 pm
Buzzcut,
Every other Wednesday I deliver Meals on Wheels. Most of my “clients” are disabled and would probably be homeless without SSD (Social Security for the disabled). Some of them are in motorized wheelchairs and on oxygen. Several are younger than me. Every few months someone dies. A few years ago I had a different route which was mostly old folks, and most of them lived solely on Social Security. Most of them couldn’t have physically worked any more either.
My mother, who’s in Assisted Living with Alzheimers, is working class and had a full time office job until she was 82. Social Security pays about half of her rent. She’s in a wheelchair and couldn’t live with us unless we moved into a one level house and had full time live-in help. I suppose she could have invested the same amount of money herself as she paid to SS, but she never really understood what a stock was.
When Social Security came into being in the 1930’s, most people had no retirement and to be old mostly meant to be poor. Of course, much of the middle class had been wiped out by the Depression.
My understanding is that Social Security isn’t really in trouble, Medicare is, and they get lumped together. When Lyndon Johnson lumped Social Security into the general fund he did the country a great disservice. (No, I don’t believe everything bad started with Reagan.)
April 6th, 2009 at 7:25 am
Socialist Insecurity is not going bankrupt because of SSD.
If I were going to make some changes, I’d start with gradually taking the retirement age up to 70, and eliminate the early retirement option. I’d also make SS benefits 100% taxable, which would be much more effective than Swordsman’s proposal of eliminting the benefits of the top 1% (which would save very little money).
The biggest problem with SS is that it is a huge deadweaght loss around the neck of the economy. The economy would be much larger if SS had never existed. Martin Feldstein had a NBER paper in the ’90s showing that the deadweight loss just from 1980 to about 1995 was 1/3 of GDP. It is conceivable, just doing a back of the envelope calculation, that the economy could have been twice as large as it is today if SS had never existed.
Seeing as how it is productivity growth, not SS, that has improved the living conditions of the elderly since 1937, you really have to wonder if even the elderly would be better off without SS, although the costs to transition to a different program would be huge. They’d make Obama look like Scrooge in comparison.
April 6th, 2009 at 9:45 am
“I’d start with gradually taking the retirement age up to 70, and eliminate the early retirement option. I’d also make SS benefits 100% taxable”
I’ve got no problems with any of these ideas. The gradual increase in the retirement age is underway, currently going up to 67. It could certainly go higher. Early retirement is a tool to get boomers out of the workforce to let younger workers advance, but also a boondoggle. I assume you’re not one of those who complain that the route to advancement is blocked? And if SS is taxed within the regular graduated tax levels so the very poor don’t get hit, why not?
I leave arguing about the size of the economy to the economists.
April 6th, 2009 at 11:56 am
I leave arguing about the size of the economy to the economists.
Where’s the fun in that?
If I am not mistaken, this is the paper. As with everything the NBER publishes, it is not a free download.
As you can see from the abstract, Socialist Insecurity is bad because it lowers the savings rate significantly.
Feldstein would probably say that raising the retirement age and taxing benefits isn’t enough reform. He’d be more for privatizing the system along the lines of 401(k)s, which would be very expensive to transition to (you have to pay current benefits out of borrowing).
April 6th, 2009 at 12:50 pm
Buzzcut,
For someone who doesn’t trust historians or the CDC, you pick some strange researchers. Feldstein is a far right winger who was instrumental in W’s SS “privatation” scheme. Even though he’s a highly thought of theoretical economist, he’s not much on the practical side. If privatization had happened before the crash virtually nobody would have retirement savings. Have any more mainstream or liberal economists bought his theory?
Again, I think we ask different questions. Would an economy twice as big but with twice as many poor be an improvement?Where would those increased savings go that would be as secure as SS — Citi accounts, Bernie M, General Motors stock? What is the role of society in providing security for its citizens?
April 6th, 2009 at 5:27 pm
Not buying Feldstein’s ideas nor conclusions. Having said that, I’ve no problem with taxing SS at the same rate as other income nor raising the retirement age to 70.
Of course, I’d still raise the top rate high enough to make Buzzcut freak out, so there’s that too…
July 15th, 2009 at 11:28 pm
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[...] Another decent blogger placed an interesting blog post on Creative Class Blog Archive Good Riddance – Creative ClassHere’s a brief overviewI said elderly entitlements. Welfare is not bankrupting this country. Medicare and Socialist Insecurity are. Long term, those programs are really unaffordable at current benefits levels. Consumption taxes like the sales tax at least … [...]