It is no secret that spending is intrinsically part of the American culture. But is our need for consumption akin to our penchant for patriotism? Are we playing a dangerous game where we live beyond our means and gamble away our future for in order to live the life we want in the present? In a new book “Beyond Our Means: Why America Spends While the World Saves”, Princeton professor Sheldon Garon makes such a claim by providing insight from a historian's prospective instead of the typical economists'. He claims that our spending patterns are directly related and a response to major events in our country's past. For example, after the 9/11 attacks, President Bush encouraged the public to continue their lives as normal and not back down. “Get down to Disney World in Florida,” he declared. “Take your families and enjoy life, the way we want it to be enjoyed.” To show our solidarity, our collective personal expenditures increased sharply and allowed for the abrupt end of the recession that started that March.
Economists already know that spending can be a powerful tool in ending recessions, but its easier said than done. The current gridlock in Congress means that there will be no decision to increase deficit spending and our only hope is that the public will continue to spend. Yet common sense tells us to save in the face of economic hardship. But in a country where spending is elevated to a virtue, its normal to incur debt to buy the latest technology or go on vacations, and personal bankruptcies are relatively forgiving, according to Robert J. Shiller in his NY Times article, such "reckless" spending is what has gotten America to the position that it is in.
Whereas other countries typically promoted saving, the US took the approach that spending is good. It promotes imagination, innovation, and a harder work ethic. I think many in college would identify with the motto of Work Hard, Play Hard. And this approach had been so successful for the US that most countries were on their way to following our lead. Yet the current global recession has effectively scared them away and has even caused us to rethink our values.
In the end, Shiller acknowledges that consumer confidence is the biggest key factor. Though we claim every year that Black Friday/Christmas sales have helped boosted the economy, these are more often than not just feel good stories aimed to bolster people's hopes at the end of the year. If it is true as Garon says that major events are what trigger consumers, than something drastic must occur to make consumers take personal risks again to find the American Dream.
Hi Arthi!
ReplyDeleteI think the idea of consumer spending is very interesting and thought provoking. From a economy standpoint, I see why government officials are encouraging spending as it makes their job easier, I think that Americans don't fully understand moderation. Like you said, we think "work hard, play hard" but with such a stable economy, we should be working hard and playing a little more conservatively. I don't think Americans should stop spending all together because in today's world the job markets are all interdependent, however, there needs to be some sense of moderation.
On a positive note, I read an article today about the recent increase in Chinese toursits spending large amounts of money on american products due to their cheaper price. Stores say that they are now spending around $6000 traveling, rather than the average $4000 of toursits from other countries. Companies are now catering to their business and providing Mandarin speaking sales associates and premier treatment. I think this can help solve the problem: it helps fill the consumer gap, without leaving the pockets of americans themselves.
http://www.nytimes.com/2012/04/15/business/global/american-brands-seek-favor-with-wealthy-chinese-tourists.html?_r=1&hp
I think this was a great point. America is such an interesting country because compared to other countries in the world such as France or Russia or China, our history as a country is much smaller. I think that because we are a newer country in the history of the world, we act differently than others. The only drastic time in which Americans truly struggled (in my opinion) was the great depression and that was well over a century ago. Americans, in relation to games, like winning. We like spending, we like succeeding, we don't like having to settle for less than what we want. I think that all of these characteristics trickle over to our economy. It's not a bad thing but it could be why when it comes down to it all that Americans are spenders.
ReplyDeleteAlot of the high spending and low savings rate of americans can be explained by out culture and government. Institutions in Europe and other places in the past have always encouraged saving, while the US government did not nurture this habit early on. Countries such as germany and italy, most credit card borrowers are required to pay their entire balance at the end of each month. If they had the option to pay a 2% minimum balance it would like like your from another plant. Here in the United States the whole economy relies on the availability of credit. When its cut off consumers and businesses slowly fade into recession. Borrowing in the United States is extremely cheap and especially with subprime mortgage lending recently the average american has decreased their savings rate. Now we got alot of people in serious debt, ranging from students and middle income households which will take many years to get out of.
ReplyDeleteI actually wrote a blog about games to encourage saving habits of kids so that they dont spend all their money and learn the value of a dollar:
http://ucguild6.blogspot.com/2012/02/games-with-practical-life-skills.html