Recession Concessions?

By Karen Sternheimer

By now you have probably heard that the U.S. economy is officially in recession. By definition, a recession involves two quarters of shrinkage in the nation’s Gross Domestic Product (GDP). You might be wondering how economists differentiate between recessions and depressions; a depression occurs when the GDP shrinks by ten percent or more. The term “recession” was used to describe economic downturns after the Great Depression so as not to alarm Depression-weary Americans and trigger widespread panic. In large part, how we define our economic circumstances shapes how we cope with them. Now that the “R” word has been confirmed, how will this alter our behavior?

Certainly those who lose their jobs, face a cut in hours, or are otherwise directly hit by the recession will be faced with serious challenges. Others may see more indirect effects, like a decline in their retirement account’s value, price increases, or a decline in their home’s value. People in these circumstances might respond by cutting back on spending whenever possible, which seems like a very reasonable idea.

Here’s one major irony of our consumption-based economy: the more we consumers rein in our wallets, the deeper the recession might grow. Fewer sales might mean companies will lay off workers, creating more strapped Americans, who will need to reduce their spending, and the cycle continues….

Let’s be clear about one thing: consumers are small players in causing some of the financial woes the country is facing. Yes, some people live a bit too close to a financial precipice thanks to over-spending, but far more members of the working class and other low-earners struggle just to get by with basics. Many people took out mortgages that they could not really afford, but they did not create the system of offering mortgages to nearly anyone (referred to as NINJA loans: no income, no job, no assets) and repackaging these as investments for Wall Street, which even executives later admitted they didn't understand. If heads of large brokerage firms didn’t realize these investments were bad, how would the average American just looking to buy a home?

And yet the recent failures of the economy offer us the chance to rethink both our economic structure and our own relationship with consumption. David Lazarus, business columnist for the Los Angeles Times, wrote that maybe Americans would begin to question our affair with materialism, which would in turn cause new challenges and result in a need to reinvent our economy:

If you believe that such high levels of consumption are unsustainable, and that sooner or later the American people won’t want more stuff, or won’t be able to afford it, where does that leave us?....Such a cultural shift would entail a wholesale reinvention of how we do business, and would almost certainly result in numerous companies either cutting back or folding. Millions of people could be thrown out of work.

Lazarus notes that it’s not simply consumption that is the problem, it’s also the meager savings rate. I had a high school social studies teacher (hello Mr. Bain, if you are out there!) who once said that as long as Americans had easy access to credit, there would be no real challenge to the social system. Perhaps this is one of the reasons why we have seen the decline in the power of organized labor over the past half century: we see ourselves primarily as consumers, rather than as workers. And our wages might be stagnant, and our savings little or non-existent, but as long as we can borrow more we haven’t complained. Well, easy access to credit is now threatened…will we see a resurgent labor movement?

Maybe, but the old beneficiaries of uber-consumption are not going down without a fight. Instead, some advertising campaigns actually use the economic downturn in their marketing pitches. De Beers, the biggest diamond distributor in the world, launched its “Fewer, Better Things” campaign. The copy in the picture to the left reads:

“HERE’S TO LESS. Our lives are full of things. Disposable distractions, stuff you buy but do not cherish, own yet never love. Thrown away in weeks rather than passed down for generations. Perhaps things will be different now. Wiser choices made with greater care. After all, if the fewer things you own always excite you, would you really miss the many that never could? A DIAMOND IS FOREVER.”

Clever, huh. Here’s an ad that criticizes materialism while simultaneously promoting the commoditization of marriage and family. And this is for an item sold by a monopoly at a huge markup, the mining of which often involves violence. The De Beers ad is strikingly ironic, but it’s not the only example of a company that’s using the recession as a pitch point.

Consider an article that ran in the Los Angeles Times’ Image section the day after Lazarus’s column. Titled “The New 24-Carat Face,” the article (which reads more like an ad) quotes a beauty industry analyst who said, “When you are spending almost $100 to fill up your gas tank, you can justify spending $70 on your face cream.” The article discusses the high-priced face creams in light of the recession a bit critically, but yet concludes, “It’s easy to feel that your face is your best investment. Ten years from now, you may not be carrying that $4,500 Bottega Veneta lizard clutch. But your mug, much like a diamond, according to De Beers, is forever.”

So how will our relationship with consumption fare in light of our new economic reality? Will more people question our culture of materialism, as Lazarus suggests (and as the De Beers ad uses as a marketing tool)? Or will the lure of looking better, younger, cooler, and hipper forever keep us in the dance of consumption? What do you think?

Comments

[Chris Hollister]

This was a very enjoyable article and points out America's views on needing material objects as a status symbol even in a recession. While there has been an obvious decrease in spending (I have been affected by this, being in the automotive industry), there are still those handful of people coming in and looking to buy the best model of a car for thousands of dollars more with the only difference being a prettier set of wheels and a button that allows you to take your foot off of the gas pedal and allow the car to keep moving at the speed limit.

America has gotten too involved in what something can do for them rather than worrying about the effect it will have on the economy. At first, all these special products that promote laziness creates more jobswhch is great but then the corporate greed pushes prices up to a point where nobody can afford it and jobs are lost all around yet the marketng drives us to save up to buy it anyways.

Very well done though, as I said. The power of marketing will never fail but if a message like yours could reach at least a few people, it might help a failing economy.

[Jayson Chaplin]

Great article. As a market researcher it's a question I have been pondering also, ‘how will this economic crisis change the current cultural landscape of consumerism?’

I’m hoping we start seeing a more collective culture emerge. For example, there are many products and services priced deliberately high to increase the image of exclusiveness for purposes of conspicuous consumption. I’m hoping we will see more demand for products and services that have an intrinsic social purpose to solving the world current problems and creating genuine happiness.

[Jack Tighe]

I enjoyed your article and wonder the same things has will consumption ever come to an end? I think not. Not in my day and age anyway. But none the less America is going to have to make some changes to fix the R word as you called it. I think we just need a little bit of confidence and choose to make a few smarter financial decisions to sqeak through the tough economic times. With that said and all the troubles before us where is the best place to start?