Depression Shopping

As surely everyone knows by now, America is deep in the throes of a recession. But no matter how dire the economy, people still buy stuff. Well apparently they buy a lot, even without any money. In the July/August issue of The Atlantic, Megan McArdle writes that:

Yet overstretched Americans aren’t… living on “beans and rice, rice and beans.” At a retailer meeting in January, Costco CEO Jim Sinegal reported that his firm was seeing strong consumer sales in prime meats and other luxuries, as customers apparently tried to replicate their forgone restaurant meals at home. And a recent report from an industry analyst projected that alcohol sales for home consumption will rise almost 5 percent in 2009—especially impressive when you consider that consumer prices are currently falling.

When the economy collapses, the change in spending isn’t just that people buy less, but that they buy practical things. (This month, discount chain J.C. Penney is opening its first ever Manhattan store.) When they’re suffering, Americans buy the sort of things that help them feel satisfied and comfortable not leaving the house. In the 1930s, for instance, Americans attended fewer movies, but they also bought radios. In 1926, a mere 20 percent of American households had radios; 75 percent owned radios in 1931. (And now, according to the article, Netflix’s profits have increased by 70 percent in 2009. Entertain yourself at home.) It’s not just radios. The percentage of American households with refrigerators more than doubled in the course of the Depression, too—despite the fact that refrigerators are expensive.

McArdle’s point is that these things changes in spending patterns produced by economic downturns might eventually matter a lot more than we currently think. A dramatic economic downturn has the potential to change spending patterns permanently. That refrigerator was so useful at least in part because people couldn’t afford servants who could make daily trips to the market (and because costly food could spoil). And despite a great eventual upswing in the economy, we never went back to the way things were. Today even the residences of the very rich are appointed with those stainless steel refrigerators. So it goes.

But, at least in part, McArdle seems to be confusing two different things. Part of what happens during recessions is that people have less money, of course. But what also happens is people with plenty of money—or just as much money as they always had—try to live in thrifty ways. I’m not sure if this refrigerator-buying version of thrift really applies to the people most severely afflicted by the latest economic downturn. McArdle’s spending patterns are about people buying expensive products in order to live cheaply from day to day. The American poor might have trouble paying the electric bill when they’re unemployed, but they live pretty cheaply from day to day even when the economy is relatively strong.

And McArdle’s a little weak on what the current recession actually means for the future of consumption. Obviously those haute nannies are out, but her point that Americans might now spend more time on, say, Facebook and Youtube seems a little weak. That’s not exactly a major trend shift. Look, more and more people are using Facebook. Last time I checked, that trend was independent of the recession. More time on social networking sites is hardly likely to dramatically influence future spending. But her point that people spend differently (not just less) when they have less money is intriguing, and oddly undercovered.

Apparently there’s always something to acquire, even if the reason you buy something is to save money. This only leaves us to wonder what the refrigerator of the 2010s will be. The iPod? Zipcar?

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Daniel Luzer is web editor of the Washington Monthly.