The Recession and Conspicuous Consumption?

In my day job, customer service, I see increasing hard times. People are always struggling, but I'm seeing much more of that recently. I hear that recession might go two or three years, and it won't be pretty. (I do have confidence in the Obama team to contain the damage.)

However, some folks have cash in the bank, and prices are going down, and they can take advantage of that. There are people who buy stuff as a matter of status and prestige. (As a nerd, I don't quite get that, like a lot of other stuff I miss.)

In bad times, this kind of consumption may get more visible or less visible.

I wonder, what happens this time? Will people with money show it off, hunker down, or maybe share the wealth?

Follow Craig Newmark on Twitter: www.twitter.com/craignewmark

Comments

[DSMason]

Consumption, conspicuous or otherwise, is going down in the U.S. For a generation, consumer spending has been fueled by borrowing and debt—now at record levels. The bill now has to be paid, so the trend of steadily growing U.S. affluence can not continue. Because consumer spending constitutes almost three-quarters of the U.S. economy, a decline in consumption will cause a general and long-term economic decline in this country. A slowdown in the world’s biggest economy will affect the whole globe.

The problem is that the whole American economy is built on consumption. The U.S. doesn’t actually produce much any more. Manufacturing has steadily declined as the linchpin of the American economy, and now constitutes less than a fifth of GDP. The imminent bankruptcy of the U.S. auto companies is simply another element of this downward trend.

Meanwhile financial services have steadily grown, mostly by providing loans to consumers to finance purchases their incomes will not allow. So when both consumption and financial services decline, on top of the previous decline in manufacturing production, there is not much left. It will take a long time to rebuild the U.S. economy. There will be much belt-tightening for the middle class, growing unemployment, and more suffering by the poor.

This rebuilding has to start with a shift from consumption to savings and investment, but this change will be wrenching and painful for America, and for much of the rest of the world

[kellygrrrl]

at a mall here in "The Valley" north of L.A., they have opened very high-end stores and everyone in the stores spending money is speaking a different language.
It reminds me of the days that we Americans used to go to Mexico and buy up everything in sight.

[jferguson]

My grandfather ran a small company in the Midwest that made money throughout the depression. The family had owned big expensive cars in the '20s, but he was embarrassed to be seen in one and so switched to Fords.

If this mess gets extensive and longer lasting, I think you will see more of this approach.

"Stealth Wealth" is a good concept for a lot of reasons.

[hypnotoad72]

I'm not upgrading my stuff until my credit cards are paid off (which have low balances, but I want to remain responsible... and not going to get into a 5 or 6 figure debt the way some unfortunately do and there are many reasons why they ultimately do. Context, but I digress...)

At that point I'll probably get a replacement TV - LCD technology is green and the good name brands are well built to last a while. Even while a 32" wide LCD uses 1/3rd the energy as a 27" CRT, anyone getting three 32" LCDs is just a wasteful idiot. And I've seen pictures, even one from a so-called "environmentalist" who ought to know better too.

[danielmcvicar]

Hi Craig
Luxury will still sell, but my intuition is that it will be fashionable to be green. Lamborghinis will still sell, but their other car will be a Prius.

[kellygrrrl]

I laugh at the people here in L.A. who own private jets but drive a Prius.

[Diogenes08]

Craig, you sound like a young man, so perhaps you haven't seen many 1930's movies or read about those days. Hollywood made a killing showing how the glitterati spent the Great Depression. Cord and Duesenberg (which were uber expensive car makers of the day) were profitable all during that period.

I don't know if history will repeat itself, but you can see by the cavalier way AIG is giving bonuses that the wealthy always do as they please.

[tomas0808]

I dream of an America that isn't so shallow and classless, where it's bad form to show off your money.

[gretchenart]

don't know for sure, but sales of luxury cars: rolls royces, ferrari's etc. are NOT down, and a local art fair catering to the wealthy did its best show ever in October. Perhaps there will not be as much "showoff-ness" but there will be definitely investments in luxury items, spreading the wealth only in the sense of hiring more servants, and so forth! See the book "Richistan" for possible ideas!!

[KillTheMessenger]

Luxury items account for a tiny fraction of the economy. It makes no difference to the nation that the rich do what they always do.