Why Are We Called 'Consumers'?
July 28, 2016 at 4:25 p.m.
By Brad Skiles-
Why aren’t we called, “American Savers”?
In their book, The Abundant Community: Awakening the Power of Families and Neighborhoods, McKnight and Block quote from Jeffrey Kaplan:
“By the late 1920s, America’s business and political elite had found a way to defuse the dual threat of stagnating economic growth and a radicalized working class in what one industrial consultant called ‘the gospel of consumption’—the notion that people could be convinced that however much they have, it isn’t enough. President Herbert Hoover’s 1929 Committee on Recent Economic Changes observed in glowing terms the results: ‘By advertising and other promotional devices … a measurable pull on production has been created which releases capital otherwise tied up.’ The tied up capital was savings.
“They celebrated the conceptual breakthrough: ‘Economically we have a boundless field before us; that there are new wants which will make way endlessly for newer wants, as fast as they are satisfied.’ In other words there is no end to satisfaction, or it is a way of promoting dissatisfaction as the basis for higher levels of consumption and production.”
McKnight and Block give this example. About 150 years ago, a person wanting a shoe would pay a shoemaker to custom fit a shoe. It would cost a lot of money but would be comfortable.
When shoe factories came along, thousands of shoes could be produced. For the price of one custom made shoe which may last five years, a person could now buy five shoes which would last about one year.
The marketing challenge, according to McKnight and Block, was first to convince people that they needed five pairs of shoes instead of one and second, that it was OK to wear shoes that hurt your feet. The factory brought standardization to shoes and once the populous accepted sore feet as a way of life, the custom shoemaker went out of business. Advertising created new wants which created jobs and new profits.
That story is about progress. More people wear shoes today than did 150 years ago. That’s good. But today, when 71 percent of our economy depends on consumer spending (Richburg, Keith “Getting Chinese to stop saving and start spending is a hard sell”, The Washington Post, July 5, 2012,) —and when our consumption has been driven by debt—a pullback in spending leads to a recession.
If the economic growth of the 80’s, 90’s and much of the 2000’s was driven by baby boomers going into debt to consume, does anyone really think this largest segment of our population will continue to accumulate debt at the same pace in order to consume? Isn’t it more likely that the aging baby boomer, who has closets full of stuff, may now want to save?
So what happens to our economy if baby boomers stop spending and start saving? The Federal Reserve’s latest data shows the personal savings rate is 3.9 percent (May 2012, St. Louis Fed). Suppose this rate went to the average of the ’70s, 9.6 percent. Would Americans have more financial independence and security if the savings rate was higher? Would that help address our looming retirement funding problem? (“Yes” and “Yes.”)
The government has a dilemma. A healthier economy would be one where Americans were known as Savers instead of Consumers. There is more financial freedom when people save rather than spend. Economic growth is more sustainable when the population spends from savings rather than from credit. But, if Americans don’t fulfill their calling and consume, then 71 percent of our economy contracts, unemployment rises and reelection hopes fade.
The Federal Reserve is doing what it can to encourage consumer spending. Its 0 percent interest rate policy discourages saving and encourages spending. You’ll be better off, financially, if you do the opposite. Focus on saving and not spending. Let’s remake our image and become known as “American Savers.”[[In-content Ad]]
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Why aren’t we called, “American Savers”?
In their book, The Abundant Community: Awakening the Power of Families and Neighborhoods, McKnight and Block quote from Jeffrey Kaplan:
“By the late 1920s, America’s business and political elite had found a way to defuse the dual threat of stagnating economic growth and a radicalized working class in what one industrial consultant called ‘the gospel of consumption’—the notion that people could be convinced that however much they have, it isn’t enough. President Herbert Hoover’s 1929 Committee on Recent Economic Changes observed in glowing terms the results: ‘By advertising and other promotional devices … a measurable pull on production has been created which releases capital otherwise tied up.’ The tied up capital was savings.
“They celebrated the conceptual breakthrough: ‘Economically we have a boundless field before us; that there are new wants which will make way endlessly for newer wants, as fast as they are satisfied.’ In other words there is no end to satisfaction, or it is a way of promoting dissatisfaction as the basis for higher levels of consumption and production.”
McKnight and Block give this example. About 150 years ago, a person wanting a shoe would pay a shoemaker to custom fit a shoe. It would cost a lot of money but would be comfortable.
When shoe factories came along, thousands of shoes could be produced. For the price of one custom made shoe which may last five years, a person could now buy five shoes which would last about one year.
The marketing challenge, according to McKnight and Block, was first to convince people that they needed five pairs of shoes instead of one and second, that it was OK to wear shoes that hurt your feet. The factory brought standardization to shoes and once the populous accepted sore feet as a way of life, the custom shoemaker went out of business. Advertising created new wants which created jobs and new profits.
That story is about progress. More people wear shoes today than did 150 years ago. That’s good. But today, when 71 percent of our economy depends on consumer spending (Richburg, Keith “Getting Chinese to stop saving and start spending is a hard sell”, The Washington Post, July 5, 2012,) —and when our consumption has been driven by debt—a pullback in spending leads to a recession.
If the economic growth of the 80’s, 90’s and much of the 2000’s was driven by baby boomers going into debt to consume, does anyone really think this largest segment of our population will continue to accumulate debt at the same pace in order to consume? Isn’t it more likely that the aging baby boomer, who has closets full of stuff, may now want to save?
So what happens to our economy if baby boomers stop spending and start saving? The Federal Reserve’s latest data shows the personal savings rate is 3.9 percent (May 2012, St. Louis Fed). Suppose this rate went to the average of the ’70s, 9.6 percent. Would Americans have more financial independence and security if the savings rate was higher? Would that help address our looming retirement funding problem? (“Yes” and “Yes.”)
The government has a dilemma. A healthier economy would be one where Americans were known as Savers instead of Consumers. There is more financial freedom when people save rather than spend. Economic growth is more sustainable when the population spends from savings rather than from credit. But, if Americans don’t fulfill their calling and consume, then 71 percent of our economy contracts, unemployment rises and reelection hopes fade.
The Federal Reserve is doing what it can to encourage consumer spending. Its 0 percent interest rate policy discourages saving and encourages spending. You’ll be better off, financially, if you do the opposite. Focus on saving and not spending. Let’s remake our image and become known as “American Savers.”[[In-content Ad]]
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