Must Consumption Be a Pillar of Our Economy?

This article was originally published by Newhouse News Service on Wednesday, January 23, 2008.

By Katherine Reynolds Lewis
c. 2008 Newhouse News Service

Economists are fretting that consumer spending might fall for the first time since 1991, pushing the United States into a recession.

Global stock markets are in turmoil, and with reason: American consumers account for about one-fifth of the world economy. The Federal Reserve Board's sudden interest rate cut and the stimulus package being debated in Washington both are aimed at keeping cash flowing from our pocketbooks.

But since when did consumption our willingness to buy food, clothes, cars, electronics, appliances and homes become our defense against economic collapse?

It wasn't always this way.

In the 19th century, the word "consumption" meant tuberculosis, notes Stuart Ewen, a historian at the City University of New York.

"The term consume ... meant to use up, to destroy, to lay waste. Consumption really was about destruction," Ewen said. "The idea of using things up in a world of scarcity was anathema. It was not celebrated."

Instead, we cultivated the values of community, thrift and careful stewardship of resources. We bought food and goods made by shopkeepers we knew.

"The larger retailing interests realized that to expand their markets, they had to break that culture," said David Korten of Bainbridge Island, Wash., author of "The Great Turning." "They set about systematically to do that, and were very successful."

In the late 19th century, manufacturers began to produce products aimed at a mass market pocket watches, condoms, razor blades, paper shirt fronts. In the early 20th century, they discovered that women control much of a family's spending, and started selling sanitary napkins, Kleenex and household appliances, said Giles Slade, author of "Made to Break: Technology and Obsolescence in America."

As we became used to buying throwaway products, often made by a stranger in a distant factory, manufacturers quickly saw the potential profit if customers treated a wider range of goods as disposable. They turned to convincing people to buy new things before the old ones wore out.

"This starts with the great idea of General Motors that people want to have new cars which may differ from old cars only in cosmetic differences," said Richard W. Bailey, an English professor at the University of Michigan.

People who had thought of themselves as "customers," a word that connotes a personal relationship between seller and buyer, began to be treated as anonymous "consumers."

The field of advertising developed as marketers saw opportunity in selling things people desired, as opposed to things they needed. Journalist Samuel Strauss lamented this changing ethic, writing in the mid-1920s: "The American citizen's first importance to his country is no longer that of citizen but that of consumer."

Consider this reporter's analysis of the online archives of The New York Times: While use of "citizen" has stayed relatively steady decade-to-decade since 1880, use of "consumer" and "customer" increased about fortyfold and twentyfold, respectively.

Product designers began to talk openly about making goods less durable in order to encourage new purchases, and saw such planned obsolescence as a strategy to end the Great Depression. They also incorporated aesthetics into basic goods, from bathroom fixtures to stoves, with the understanding that the fashion would change over time.

"It's a handy economic model for the manufacturers to develop an item that needs to be replaced every three years or every year," Slade said.

After World War II, the economy was booming and companies found a ready consumer market for everything from nylon stockings to inexpensive watches. The 1950s and '60s brought consumer sprawl and our obsession with our homes: having the right car, the right kitchen appliances, the right furnishings.

"This is the period of time where being a consumer becomes not simply a way of life that is an entitlement of being an American, it also is a sign of loyalty," Ewen said. "Middle class life begins to be defined as spending money you don't have."

In the second half of the 20th century, department and chain grocery stores replaced independent retailers rooted in the community. Consumer spending continued to climb, from 62 percent of gross domestic product in 1981 to 70 percent last year, according to Mark Zandi, chief economist at Moody's in West Chester, Pa.

None of this happens in isolation.

When we buy more from other countries than we produce for export, it creates a trade deficit $811 billion in 2006 and leaves excess dollars in the hands of foreign manufacturers. Some overseas investors use their dollars to buy U.S. assets, such as Treasury securities, stocks, even entire American companies. But those wary of our economy sell dollars in the foreign exchange markets, which drives down the value. That's why the dollar fell about 10 percent last year as the mortgage crisis unfolded.

And because the money we spend fuels so much economic activity elsewhere 19 percent of global GDP, according to 2006 statistics any belt-tightening in the U.S. makes the world nervous.

While we buy foreign-produced goods, other nations eat up our entertainment one of the few industries with a positive trade balance. But television also spreads consumer desire, displaying high-end products whether or not the viewer can afford them, critics say.

To Korten, this hurts more than our wallets.

"The quest for money deepens our alienation, which advertisers then connect to and assure us their products will make up the deficit and make us feel connected and popular and acceptable and that requires more money," he said. "It becomes a self-reinforcing cycle."

Korten is among activists decrying consumption and encouraging Americans to spend and work less.

A similar argument appears in "The Story of Stuff," an online video by Annie Leonard that bemoans the impact consumerism has had on the environment and developing countries, where manufacturers exploit both raw materials and labor.

We throw out 99 percent of our purchases within six months, according to the video. And while it seems cheaper to replace a broken electronics device than to repair it, the gadget's low price doesn't reflect its true cost in loss of natural resources, health damage to workers, and the pileup of waste.

"In the past three decades alone, one-third of the planet's natural resources base has been consumed," Leonard says in the video. "We have become a nation of consumers. Our primary identity has become that of consumer, not mothers, teachers, farmers, but consumers. The primary way that our value is measured and demonstrated is by how much we ... consume."

What would happen if everyone trimmed consumption?

"In the near term, we don't want consumers to rein in their spending too aggressively because then everything falls apart," said Moody's Zandi. "In the long term it would be therapeutic if they reined in spending a little bit and saved more. It's a matter of moderation."

One thing's for sure: The world is watching as we choose a course.