politics

The U.S. Consumer: Drunk on a Spree, or Barely Scratching By?

December 6, 2004

Over the weekend, Steve Lohr of the New York Times led off the Week in Review section with the observation that U.S. consumer spending has for years been the engine that pulls both the American economy and the global economy. “But,” Lohr writes, “all that heroic pulling comes at a price,” and that price is the non-existent savings rate and staggering debt levels of many American families.

It’s not news that the personal savings rate fell in October to a meager two-tenths of one percent of disposable income, a rate that indicates that a family with take-home pay of $40,000 a year manages to save maybe $1.50 a week. Or that the average household now carries more than $8,000 in credit card debt, or that every 15 seconds, someone goes bankrupt in the U.S., five times the rate in 1980.

What is new is the debate that Lohr examines: Are Americans in hock because they are materialistic shopoholics, “born to buy,” and gobbling up every new gadget on the market — or are they in debt because they are stretched each month just to pay for basic costs like housing, child care, health insurance and taxes?

On one side of the debate, Lohr cites Juilet Schor, an economist and sociologist at Boston College, who is the author of Born to Buy: The Commercialized Child and the New Consumer Culture, and believes the soaring of family debt is caused by a consumer economy out of control. Most Americans, she contends, have attained a level of affluence where added consumption no longer improves real welfare. (Which, she says, makes them depressed, and sends them off on yet another shopping binge.)

Across the river is another school of thought, personified by Harvard law professor and bankruptcy expert Elizabeth Warren. The real problem, Warren says, isn’t impulse buying of luxury goods, but families stretched to the limit just to meet the rising costs of necessities like education and housing. Warren has her own book — The Two-Income Trap: Why Middle-Class Parents Are Going Broke — and she cites some scary numbers. What she classifies as fixed costs — mortgage, child care, health insurance, car and taxes — take up 75 percent of the income of today’s middle-class family with two working parents. By contrast, those costs chewed up just half of a middle-class family’s income in the early 1970’s.

Bankers, of course, don’t care who’s right, as long as they collect the toll. So Lohr examines how they have figured out that the real money is to be made from people who constantly carry large balances on their credit cards but make only minimum monthly payments. And he takes us on a trip through the technology used by credit card companies to track spending patterns that “employ intricate data-mining systems, neural networks and business intelligence software” to search for customers that fit that bill. This software culls through credit reports, purchasing records, ZIP code directories, and memberships in organizations “with pinpoint precision to assemble digital dossiers that winnow out deadbeats and zero in on promising prospects.”

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The hunt is for the ideal consumer who loads up on debt but won’t default, says Joseph Nocera, editorial director of Fortune and author of the 10-year-old A Piece of the Action: How the Middle Class Joined the Money Class, which chronicled the rise of the modern credit card industry.

“The big issue this raises is whether the democratization of money and finance has, on balance, been a positive thing or a negative thing,” Nocera tells Lohr. “Are we better off? I’m not sure.”

–Steve Lovelady

Steve Lovelady was editor of CJR Daily.