Oh, and one more thing. You know, the money you don’t have? Ideally, you should be spending it on stuff you don’t really need.
A NY Times op-ed by Daniel Gross challenges the widely accepted claim that American consumers have turned anti-debt and gotten all thrifty over the past couple of years. How so? For one thing, Gross points out a recent CardHub.com study (which I covered a couple weeks ago) revealing that the huge overall decline in credit card debt has come about not because customers have been dutifully paying off their bills and scaling back purchases, but because lenders wrote off $124.1 bill in balances as uncollectible. Gross also points to signs indicating that the consumer is bound to spend more and more, and soon:
Mailboxes are again stuffed with credit card solicitations. Newspapers are filled with come-ons from car dealers offering zero-percent financing. The Federal Housing Authority offers mortgages on houses for as little as 3 percent down.
These are not signs of a troubled economy and/or the apocalypse. These, in fact, are all good signs, Gross writes. For if the economy is going to get humming along again, apparently it’s mostly up to the American consumer to suck it up, take one for the team, and go on a steady (if not crazy) buying spree. Few people can do so with cash alone, so it looks like a continuation of the culture of debt is in order—and that’s exactly what the government and economists want, according to one theory. Gross writes plainly:
Unless you’re a multimillionaire, it’s difficult to make significant purchases — college tuition, a Viking stove, a Toyota Prius, computers, jewelry, a house — out of savings or cash flow from wages. The renewed willingness and confidence to spend money we don’t have is vital to the continuing recovery.
What, do you think there’s something wrong with spending money you don’t have? Do you think there’s something to the idea floated on this blog recently that perhaps Americans should save more like Germans?
On an individual basis, saving more and spending less may be wise. But collectively, we’re expected to spend until the cows come home, or at least until all of these companies sitting on their hands decide it’s OK to man up and hire some people. And we’re supposed to keep up the spending despite an uncertain job market and near-10% unemployment rates, despite the struggling housing market, despite credit cards with higher interest rates and more fees, and despite the fact that wages are going nowhere while health care costs are skyrocketing.
So are we or aren’t we already spending like it was 2006? According to the credit card date cited above, yes, we are. But here’s what the middle class has been up to over the past couple of years, according to Labor Department data cited in a WSJ story:
Middle-class households reined in spending mainly on discretionary items. On average, from 2007 to 2009, they cut spending 20.1% on alcoholic beverages, 15.2% on clothing, and 9.5% on restaurants and other food away from home. They also spent less on some groceries, cutting back on items such as fresh milk and cream, as well as seafood.
Kiplinger, meanwhile, highlights the results of a new Harris Interactive poll:
According to the polling firm, which surveyed 2,620 people about their purchasing habits, 66 percent of Americans expect to spend less on restaurant meals in the next six months. And 62 percent say they will cut back on their entertainment spending.
Those percentages, Harris said, have not changed materially since the recession began at the end of 2007.
So have we become a nation of savers, or have we never really lost our free-spending ways? The answer’s not clear. Regardless, Gross says that the economy needs free spenders, even though widespread hyper-consumption very well may spell disaster in the long run:
Running up consumer debt may be a moral failure and a recipe for long-term damnation, but it also contains the roots of our short-term salvation.
Personally, I’m not planning on going into debt to buy a Viking stove, computers, jewelry, and hopefully not even to send my kids to college. I guess I don’t care enough about the economy to dig myself into debt. But you should.