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United Shoppers of America
"Economists and psychologists are perplexed. Unlike the 1991 recession, many Americans take new credits more quickly than in years before. In 2002 an average household had more than ten credit cards.. Credit card debt doubled within a decade.."
UNITED SHOPPERS OF AMERICA
No money and no jobs but Americans continue shopping. They become more indebted than ever and save the world economy
By Thomas Fischermann
[This article originally published in: Die Zeit 15/2004 is translated from the German on the World Wide Web, http://zeus.zeit.de/text/2004/15/US-Konsumenten.]
A chicken made of plastic for $29.98 plus shipping charges. The thing rocks to music. There are also inexpensive offers from the Johnson-Smith mail order firm in Bradenton (Florida), the amusing electro-shock machine for the desk ($14.98) or the T-shirt with the inscription “STUPID” ($12.98). Who will buy this junk in times of sustained unemployment and continuing slack periods? “No problem”, says business spokesperson Kim Boyd. Customers must wait for minutes on the order phones of the firm. “This is part of the enormous success of our catalogue.”
Johnson-Smith is not the only American retailer that tells of unexpected sales successes these days. The dollar may fall, American businesses may hold back hiring new workers and investing and the heavy debts of private households may mount. Still America’s buyers are not weary. In the last Christmas season, the merchants proudly posted 6.7 percent more Christmas sales than the year before, the largest increase since the boom year 1999. Since then, demand has been stable. The American consumer remains loyal despite all the worries as the ultimate shopping machine defying the weather, terror and bad economic data. The worldwide economy is thus preserved from collapse, many economists say. Consumer spending is responsible for 70 percent of the US gross domestic product. The world economy would be even more depressed without the American growth.
Is this a shopping frenzy despite the bear market? “Listen to us”, Michaela said, “no one needs to save and there is no recession here.” With her left hand, the 59-year old holds on the shopping cart and points threateningly with her right hand. “We are persuaded of these things by the liberal media. These are all lies. If you want to hear the true story, ask the people here!”
It is a sunny morning in Orange City, Florida. Michaela finished her first shopping by 11. Food and household articles in the amount of $50 drift from the local Wal-Mart supermarket to her Dodge pickup truck. With her are her daughter Dana (32) and her grandson Jax (3) enthroned in the shopping cart with chocolate smeared on the corners of his mouth.
A few months ago, the Orange City Wal-Mart made headlines worldwide. On the morning after Thanksgiving Day, traditionally one of the biggest shopping days of the year, a horde of bargain seekers stormed through the doors to grab DVD-players for $50. 41-year old Patricia Vanlester was trampled upon and sent to the hospital. Although a few doubts were raised since then about the seriousness of her injuries, the stampede of Orange City has become a symbol for the greedy insatiable consumer.
Today it is quiet again. The DVD-players now cost $44. Michaela and Dana have long made their purchases. “We did our shopping last year”, says the mother-daughter duo and lists them, the computer, the television with built-in DVD player, the car and the swimming pool. “How incredible that US flags were hung everywhere after September 11”, Michaela said and added in the same breath “and how this nation came together. What should we do now?” “We go shopping twice every day”, the daughter Dana quickly interjects.
This morning many arguments were proffered in the Wal-Mart parking lot why this was a good time for shopping despite the slackening economic recovery. Karen, a 42-year old mother of two children, “has experienced a few cases of unemployment in her circle of friends.” The job of her husband, a break baker, is secure. In addition, Karen is helped by “her faith as a Christian because God cares for us in distress.” Norene, a woman in her early thirties with two children, has not scaled back her shopping. At least she says this. Her husband was unemployed last year and “we lost our good life”, she laments. Now the family of Norene’s father arrives, waits “for a miracle” and complains of the economy “though we can still afford what we need”. He tells no one this morning in Orange City that he has reduced his purchases on account of the economic situation.
Perhaps this is an accident. However a familiar adjustment process in earlier economic slack periods does not function this time, the “lowering of expectations” and greater modesty in shopping. The recession did not pass over all branches of trade. At the moment, clothing, durable consumer goods and food are problems. Demand like the consumer mood registered in surveys has fluctuated up and down somewhat uncertainly since the crash. Still a trend continues that had its beginning in the boom years…
At the beginning of the nineties, Americans on average put aside nine percent of their income for meager years. Now the savings rate varies between two and four percent. The stock market boom, the inflated value of real estate and their apparent wealth led consumers to exhaust credit cards and other loans. Little has changed here despite the economic collapse and stock market crash.
Economists and psychologists are perplexed. Unlike the 1991 recession, many Americans accept new credits more quickly than in previous years. In 2002 an average household had more than ten credit cards with a total debt limit of $9000. This corresponded to a doubling of credit card debts within a decade.
Even in the United States there is a tradition of criticism of the consumer society or consumerism. These voices were heard in the sixties and seventies. Nowadays consumer advocate and former presidential candidate Ralph Nader criticizes America’s “eleventh commandment”, “shop until you drop”. Protest groups organize the “Buy Nothing Day”. Critical books decry the “luxury fever” and “McWorld”, “America overcome by consumption”. They warn of empty dreams and empty bank accounts. Astonishingly more than three-fourths of Americans regard their culture as “too materialistic and too greedy”.
THE WASTEFUL AND EXTRAVAGANT LIFESTYLE OF THE RICH BECOMES A MODEL
Their protest is only a theory. When American social researchers ask their compatriots today about the ingredients of a “good life”, they answer more often than 15 years ago by listing consumer goods, luxury articles and services. Why is this? A series of theories could be named. In his standard work “Theory of the Leisure Class” (1899), the economist Thorstein Veblen explained how the desire for social status also drives the desire for products and services. In its popular variant, the phenomenon could be described as “keeping up with the Joneses”, the envious squinting at the neighbor’s assets and untiring emulation. This familiar expression is a firm element of American culture.
What has changed in the past decades is the standard, argues the social researcher Juliet Schor from Harvard University. The neighbor is no longer drawn on for comparison. In a society where an important class at the top end becomes richer and richer, their lifestyles are cited for comparison. The television and the gossip press amplify this. This produces a much stronger consumer pressure than in the past. Therefore Schor urges “advertising-free spaces” and advertising prohibitions in the media to protect American consumers from themselves. Studies seem to confirm Schor’s theory. The more time an American spends before the picture screen, the more he regards tennis courts, private airplanes, convertibles, housekeepers and swimming pools as the standard equipment of an average US household.
Is it the television that drives Americans into a buying craze or shopping frenzy? Must America’s consumers be protected to not awaken one morning to a gigantic mountain of debts? Ken Goldstein considers this misleading. The consumer researcher at the New York think tank Conference Board has focused on the moods of consumers for years. He devised one of the best-known indexes of the American economy. Since the late sixties, the Conference Board has compiled month after month the so-called consumer-confidence index. 5000 Americans are asked whether the economy gives them courage to shop. “We are simply interested in their gut feeling”, Goldstein says. “Most of these people don’t even read a newspaper. Not even a psychiatrist could explain why they have this or that view of the economy!”
Nevertheless the aggregate gut feelings over the decades have proven to be one of the most reliable barometers of public opinion on the US economy. They have inspired Ken Goldstein’s own view why the consumer intoxication has not blown over or faded away. “Life obviously isn’t so bad for people”, Goldstein says. “Perhaps all this isn’t so irrational. Perhaps consumers have no reason to promote sadness.”
In the late nineties, Goldstein’s barometer of public opinion recorded the greatest euphoria of all time. The index rose at that time to 145 points. In the recession years, it fell to 60. Consumers were in a far better mood than in earlier recessions when the index fell to 35. This week the barometer climbed to 88, which is regarded as relatively confident. What about insecurity on the labor market? What about the debt records and bankruptcies that one often hears about? What about the many exhausted credit limits, the drastically increased penalty fees of credit card firms against tardy debtors and the many bounced car credits? “Most Americans are honestly dealing with their debts”, Goldstein insists. “We are not Swiss but we are also not a wasteful nation.”
A series of economists share this optimistic view of things. On average the debt service of a US household – that is repayment plus interests – rose from twelve percent of income to 13 percent. This was hardly an explosion. The trifling monthly figures are partly a gift of the head of the Federal Reserve Alan Greenspan. Low interests and massive debt rescheduling of old credits allow the paradox that the monthly numbers only rise slowly despite the growing mountain of debts. In part they are also a gift of George W. Bush. Massive tax cuts enabled disposable incomes to rise and livened up the economy. Enormous holes now appear in the public budgets. However that is another
Another argument of the optimists is that prophets of doom often predicted the debt overload of the middle class and the great collapse but the collapse never occurred. This is due to a cultural misunderstanding. Buying on credit has always been very American, argues Lendol Calder, a historian and author of the book “Financing the American Dream”. Since the fifties, credit cards were dominant in the consumer conduct of the upper middle classes, Calder argues. Customary consumer credits played a comparable role before the 50s. Calder insists that this credit culture involves discipline and maintaining the work ethos, not hedonism and waste since the monthly installment payments have to be managed.
A series of other economists and social researchers believe that Americans’ relations with credits really changed since a few years ago – miles away from solid economies a la Calder. “The new ethos of consumer credits undermines that historical balance between work and consumption”, Robert Manning wrote in his 2000 bestseller Credit Card Nation. Credit cards ironically called “Yuppie-props” are actually handed out to unemployed students today.
“EVEN CHILDREN, DOGS AND CATS RECEIVE CREDIT CARDS TODAY’
Americans just before losing their jobs often get a whole assortment of credit cards as a kind of unemployment benefit. In the last years, massive advertising campaigns swamped less solvent population sectors with credit cards. More and more Americans declare personal bankruptcy. On average, the debt statistics look harmless. However growing numbers of the population are led astray by credit- and consumer intoxication. “Even children, dogs, cats and oak trees receive credit cards nowadays”, the worked up head of the Federal Reserve Alan Greenspan decried a few years ago. A popular bumper sticker appeared sometime in the nineties: “I Pay My Master Card Bill With VISA”. This is not a joke for thousands of Americans who have lived for a long time from the so-called credit card shuffle.
What leads to the scenario of the pessimists among economists and social researchers is that the buying frenzy of Americans cannot be financed this time and brings a rude awakening. They may invoke God and the Fatherland for a few months in the parking lot of Wal-Mart but jobs, net incomes, stock prices of their investments and the values of their homes are not joining in the game. “If there is a bubble in this country, it is indebtedness”, Dave Rosenberg, the US specialist with the investment bank Merrill Lynch said recently. Around Wall Street, several experts predict a collapse of consumer confidence, an end of the buying craze and a breakdown of the economy.