Will the Recession Effect Last?

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For now at least, cheap is cool. Frugality is viewed as acceptable, sensible. The assumption is that this “Great Recession,” which has thrown the nation (and our retailers) all for a loop, will have lasting effects. Here’s why it won’t.

Reports have stated that the economic downturn has created a “Recession Generation.” There is a “New Normal” for the way we live and spend. What these reports skip past is that, while there have been some behavioral shifts, there was nothing normal—or at least there shouldn’t have been anything normal—about the way people were behaving in the recent past. A negative national savings rate can not be sustained.

As The New Yorker’s James Surowiecki points out, the national savings rate went above 6% earlier this year. But Surowiecki is quicker to point out that spending sprees have always followed soon after periods when thriftiness was in—and that includes the Great Depression, after which, he writes, “America really came into its own as a consumer society.”

What’s more, Surowiecki isn’t all that impressed by the scale of Americans’ scaling back in recent months:

You don’t need psychology to explain what’s happened: simply put, Americans have been spending less because they have less money to spend. After all, in the past two years, nearly seven million jobs have been lost and wage growth for people who have kept their jobs has been anemic. At the same time, the housing crash and the stock-market meltdown erased, conservatively speaking, about thirteen trillion dollars in household wealth. Given the well-known wealth effect—people’s tendency to spend more when they get richer, and vice versa—that alone would translate into an expected drop in personal spending of between five hundred and seven hundred billion dollars.

In other words, people haven’t been making the conscientious decision to spend less. They simply have less money to spend. There is no choice being made here.

Surowiecki provides even more perspective here:

Before we go proclaiming this the age of the American tightwad, a little perspective is in order. Even after the worst recession of the past seventy years, retail sales this year will be about where they were in 2005. Does anyone really think that four years ago Americans were misers?

Why, after the ’90-’91 recession, and after the Internet bubble burst, and after 9/11, and right now, has there always been an assumption that a newly-adopted frugality will last? Why the predictions that fundamental consumer changes will take root?

I think the answer is that most people firmly believe that thrift is a virtue. We know that we consume more than is necessary. We know that we should buy less and save more. We want to believe that we, as individuals and as a nation, can change our ways and be reformed, saved even. We figure that, at some point, we just have to learn our lessons. Don’t we?

The problem is that this is not a fun lesson to learn. (Is being taught a lesson ever fun?) A long attention span is required, as is discipline and a certain hard-headedness. It’s much easier to scale back on spending for a couple of weeks, or to practice the fake frugality described in The NY Times mag’s Rob Walker column about “exclusive” online discount boutiques that sell designer dresses for $2,400—but hey, the original price was over $8,000, right!

As I’ve said before, saving money isn’t just about buying stuff on sale.

So all you cheapskates, enjoy your chic moment in the sun. Your days of being thought of as cool, as something other than a dorky, obsessive, miserly killjoy, are numbered, once again. I have to agree with Surowiecki’s beliefs that conspicuous consumption will return in full force. Proudly cheap Lauren Weber, whose book In Cheap We Trust is now on bookshelves, pretty much had the same prediction in a recent Cheapskate Blog Q&A:

We are in a moment right now when cheap is chic, thanks to the recession. I think this will prove to be a flash in the pan, though. As soon as the economy recovers, Americans will cheerfully re-set their consumer appetites a notch or two higher than before. History shows that forced retrenchment rarely has a lasting effect. So I expect to see Hummers and $5,000 handbags making a comeback in a couple of years.

So, are you a fair-weather tightwad? Or a diehard cheapskate? Time will tell.

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