SPLURGE: Analyzing American Consumer Spending in a Recession

14 Dec 2010

Americans are notorious for spending large amounts of money on material, and often superfluous goods. As of the writing of this essay, America has the largest capitalist, consumer economy in the world. Its citizens’ spending habits have been groomed for the better part of a century. ‘Once-in-a-lifetime’ deals, creative arithmetic, and more fine print than anyone cares to read are all standard operating procedure in this highly competitive society. 2010 is coming to a close and America’s last two years have been some of the worst economically since the Great Depression in the 1930s. Unemployment is staggering at 10 percent, and the U.S. national public debt is 13.85 trillion dollars and increasing (“US Debt Clock”). Middle class Americans have been the recession’s primary target and are quietly disappearing. It may be a full decade before the world recovers from this recession.

Although the economic outlook illustrated above appears grave and meek, it would not appear that way to an individual observing Americans’ current spending statistics. Spending is already on the rise, and with the exception of new car purchases, spending on goods and services are higher than they were before the economic meltdown. Additional research suggests that people have increased spending regardless of whether they can afford to or not. Savings accounts have increased substantially when the recession hit, but are quickly declining. And even at its peak, Americans’ savings were far short of their European counterparts (Thiel). This all seems incredibly counter-intuitive–and it is. Stefan Thiel, in a Newsweek article titled “Urge to Splurge” outlines a number of explanations for America’s flourishing consumer lifestyle in this recession:

The truth is that spending may be hard to contain. Entire generations of consumers have grown up with the idea of instant gratification and the credit culture that comes with it. Ever since Henry Ford popularized the installment loan to sell his newly mass-produced cars, the idea of saving to buy something has nearly disappeared from the American financial vocabulary (Thiel).

The above quote is significant because it suggests that these spending habits were not born overnight, but have been festering in Americans for decades (Thiel).

Wealthy Americans are buying new cars, electing for plastic surgery, and purchasing expensive items, while the lower and middle income class are returning to the mall. The commonality between them is that spending is entertainment. Being thrifty is the same as being boring. This point is elucidated by a Floridian resident named Hope Good, who found a new job whose salary is $40,000 per year. Good exclaims, “I have been so frugal last year. I’m sure if I wanted to save, I could, but I feel like I am making more so let’s have some fun.” A market-research analyst, Marshal Cohen, aptly states that, “People are going through frugality fatigue.” America is a society based on instant-gratification (Thiel). It is no longer enough to be employed at the bottom and climb the corporate ladder. That is the way of the past. Students today are swinging for the fences immediately out of college. Classmates of this essay’s author have computer programming jobs awaiting them after graduation at Facebook, Twitter, Microsoft, and Google, with six figure salaries.

Midnight, on November 26th, 2010 began what is known as ‘Black Friday’. Black Friday is the day following Thanksgiving when the ‘best’ sales of the year are offered on many high priced items. Hoards of people line the walls of department stores, hoping to reach the items before they are sold out. In some cases, people are trampled causing serious bodily harm. Although this year had been relatively mild and congenial, fights still broke out where tensions were high. Regretfully, this author’s mother, Esther, and sister, Jocelyn, were among the wide-eyed midnight drones who wandered from store to store, gleefully saving hundreds of dollars on new designer boots, jeans, and jackets. When they returned home from their spending spree, they joyously declared how much money they had saved. More specifically, Jocelyn, said, “We bought a pair of $1200 boots for $400. We saved $800!” What Esther and Jocelyn failed to realize (and still refuse to acknowledge) is that they, in fact, did not save $800. Instead, they spent $400. Esther and Jocelyn readily admit that they would never have purchased the boots at $1200, and hence, if they had never been put on sale, the two of them would never own the boots to begin with. Esther and Jocelyn did not save $800 because they were never going to buy the boots at $1200 anyway. If they were never going to buy the boots at their original price, then what is the harm in never getting the boots at all? In the end, they purchased boots for $400. The author and his father, David, tried to convey this concept to Esther and Jocelyn, but were summarily dismissed as being ‘men’ and simply could not possibly understand. This much is true. The author has considerable difficulty assuming the roles of Esther and Jocelyn, but some sociological analysis could shed light on why they think the way they do.

The theory of structural functionalism states that societal functions operate in sync to obtain a state of equilibrium. Within structural functionalism exists a notable concept–View of the Individual. This concept describes human beings as advanced, social creatures who typically seek interaction with others. People are predictable in the sense that they desire friendships, love, affection, and relationships. Hermits are often considered out of the norm, strange, or even defective (in terms of being human). One has to be socialized in order to feel valued and purposeful. Individuals, or actors, can take action. Action is a key element of the View of the Individual because it puts motive and behavior into a larger social context. The notion of action is best described by Talcott Parsons in The Social System (1951) as behavior which is motivated by the longing for gratification and desire to be ‘higher’ class. These actors and their subsequent actions are linked together in a framework of roles and status. People obtain a position within the framework and, through socializing, learn the behavior that people expect that role to perform. This framework of actions, behavior, and actors, are an essential factor to structural functionalism as a whole and can be tangentially linked to Goal Attainment where decisions are made as a reaction to desires (rather than demands or actual necessity) (Lengermann and Brantley). Thiel’s Newsweek article states:

Habits of spending, saving, and credit are all about incentives, says Carmen Reinhart, a University of Maryland specialist on debt and financial crises. “When easy credit is given, it is usually taken,” she says. Many of the practices that got Americans into trouble either don’t exist or are expressly outlawed in most other countries, she says, including the home-equity loan, the zero-down mortgage, and the little-documented subprime mortgages that were targeted specifically at the poor.

Ordinary middle and lower income citizens were provided opportunities to own homes, new cars, and, most importantly, increase their position within the social system. Their desire to become ‘higher’ class contributed to excessive spending. These unsuspecting victims were lured in by ‘deals of a lifetime’ and other seemingly impressive incentives. In America, a sale, or a deal is seen as saving money, not spending money, and must be seized before the deal is gone ‘forever’. Hope, Esther, Jocelyn, and others like them are all prey to this line of thinking. They are shoppers seeking goods and services, and are expected to find the best deal possible, all in the name of satisfying their desire to have designer clothing. This ‘status-role’ and ‘consumer-incentive’ relationship suits the corporate structure immensely, whom surely look forward towards Black Friday every year. Although, Black Friday is not unique. There always appears to be some ‘impossible’ deal or ‘great’ sale for some goods on every day of the year. Coincidence? The View of the Individual concept functions very well in terms of consumerism–driving spending and debt to support the capitalist structure of America.

From an interpretive perspective, Ethnomethodology considers the situations of ordinary people and the basis from which decisions are made. People try to make sense of their actions, or the actions of others based on their view of the world. An interesting factor in Ethnomethodology is the idea that when a person refers to accepted social norms to explain some type of circumstance, they are actually “constructing a social reality.” There are three points that elucidate this thought. The first, doing, which describes the act of creating a position, or role for one’s self by drawing from society’s unwritten rules of what that role expects of them. An account is an explanation put forth by an individual to explain or justify an action. And lastly, accounting practices refers to how others accept or reject peoples’ accounts, often based on common sense and trustworthiness of the accounter. These points are part of a broader context of assumptions, reasoning, and general understandings. Some elements in society may become so obvious and self-explanatory that to inquire would be strange or even considered rude. For example, if someone is vomiting, it would be odd to ask them if they are feeling ill. However, some components that appear ‘obvious’ are only due to cultural or societal customs (Brantly, and Lengermann). The Newsweek article mentioned above contains the following passage:

“No interest until 2014,” read the massive red sign outside Big’s Furniture in Henderson, Nev. It beckoned Diane Lewis to the store’s year-end liquidation sale. “I had to pull in,” she said as her sons frolicked on mattresses nearby. “We really need to get us a new bedroom set; their old one is kinda beat up. If we can get that financing deal, we can make it work. I mean, 2014 is a long way off, you know?” (Thiel).

Diane Lewis has fallen on tough economic times after her husband was laid off from his job. The liquidation sale and strong incentive baited her into the store. Like many before her, she fell into the trap of believing how much she would save, rather than how much she was spending. Her son’s bedroom set is old, and ‘kinda’ beat up, but can it not wait until there is more financial stability within the home? If one searches hard enough, there will be another deal just like the one she found at another furniture store. It is important to revisit the idea that Americans’ perspective on consumerism is based on how much one saves on a purchase rather than how much one spends. The end result is that in many cases, Americans spend money they simply do not have. The mentality that 2014 is ‘a long way off’ does not change the fact the money was not there to begin with. Diane Lewis, Esther, and Jocelyn are essentially doing shopping, American style. They are shoppers, or rather consumers, who seek out the highest quality item for the best possible price, regardless of whether or not they actually need the item. By now, the account is apparent–the claim is that incentives are money, so it is egregious to pass up such an enticing offer. Incentives are a social norm in any consumerist society and therefore the explanation appears reasonable. The truth, however, is that the account is an excuse for spending money, not an explanation for saving money. Corporate advertisers do an exceptional job of promoting deals as major money-savers and building trust with consumers. There is a secondary argument found in accounting practices. The general society accepts these incentives as genuinely beneficial to the spender despite whether or not they can actually afford the item in the long term. Consumers “construct their own social realities,” believing they landed the deal of a life time, when in fact, they would not have spent that much money (if any) on the item (or a home, or a car) to begin with.

Critical theory is a broad, derivative theory of Marxism. It is a social critique of one or several class structures dominating over others. The pathology of hyper-rationality is a concept within Critical theory that, as Michael Mendis of Bigthink.com describes, “the unquestioning faith in the efficacy of reason,” (Mendis). Reason serves as an absolute power to hyper-rationalists, to such an extreme that it becomes absurd. A particular society’s version of reason dominates the society itself without objection. The culture’s hyper-rationality, in a sense, has a God-like quality. Mendis exclaims:

It is important to remember that one can be under the tyranny of “reason” just as much as one can be under the tyranny of a God…The fact that [hyper-rationalists] are taking refuge in rationality would suggest that they are fleeing from a recognition of their own irrationality—or rather, the irrational aspects of themselves (Mendis).

When combining this notion of tyranny under “reason” with other concepts from Critical theory such as administered society, the effects on consumerism, spending, and incentives are profound. In administered society, a nation state provides an illusion of choice, and is often executed in concert with the corporate structure. Again, in the Newsweek article, Thiel states:

America’s tax code has massively promoted consumption and debt while punishing savings and investment. For most governments around the world, the biggest source of revenues is the consumption tax, while America puts a heavier burden on income. The home-mortgage-interest deduction, which most other countries have abandoned without damaging the rate of home ownership, literally rewards Americans for accumulating outsize debt. If some of these incentives aren’t changed, then frugality will last only as long as the memory of the crisis (Thiel).

The above quote is astonishing, but true. And recently we have seen a blatant example of the government coordinating efforts with private industry through an incentive program known as “Cash for Clunkers.” Consumers were encouraged to turn in their old vehicles by purchasing new ones in an unbeatable deal. This simply increased the debt of our citizens who may not have been financially stable to purchase a new car and increased the revenues for the automobile industry. Although administered society provides a framework for how splurging can happen in America, hyper-rationality explains why it happens. People are so convinced that deals are beneficial to them, they will take on more debt in the process. Remember what Diane Lewis said? “I know I probably ought to wait a little longer, but this is a pretty good sale, so I think we might buy something if they’ll approve us,” (Thiel). Spending money now in order to save money later is a very reasonable idea. But this has become a fact in our capitalist society, and to such an extreme, that people will incur serious amounts of debt to believe in it. And in some cases, they find that they never needed to purchase the item anyway–like those $400 pair of boots. The author apologizes–$1200 pair of boots that cost $400. This is true hyper-rationality.

The natural progression for this paper is to discuss George Ritzer’s McDonaldization. McDonaldization is the transition from a now outdated ideal of best quality, and engaging service to a scientific, impersonal, and high throughput methodology. Quantity over quality is one of four features that Ritzer argues contributes to the McDonaldization of society. The idea is that more of a product, in a shorter amount of time, and at lower cost, is more desirable than the converse. Another key objective of McDonaldization is the Irrationality of Rationality. Ritzer states in his book, The McDonaldization of Society (1993):

…irrationality means that rational systems are unreasonable systems. By that I mean that they deny the basic humanity, the human reason, of the people who work within or are served by them (Ritzer).

High throughput systems, which are rational to the extreme, have no room for humanity. It is essentially a machine, or computer program with no feelings. It is a set of instructions to be carried out in a repeated, predictable manner. Mechanical process (in the methodological sense) contribute quantity over quality. But as stated earlier, this is a line of thinking that predates McDonalds, and can be traced back to Henry Ford’s assembly line. Henry Ford famously said, “People can have the Model T in any color, so long as it’s black.” Quantity over quality of service. The assembly line is a revolutionary algorithm. A computer can perform the same list of operations, and in fact they now do. Factories of machines, not manual labor, are constructing today’s vehicles. This describes Ritzer’s control argument–the replacement of human labor with modern technology. The McDonaldization and Fordization of America are only one factor of a larger sociological context. Emphasis on efficient and quantifiable solutions stem from the desire for instant-gratification. More for less! Humans are being replaced by machines. This does not suggest a ‘Skynet’ or artificial intelligence apocalypse is upon us anytime soon, but it does contribute to an overall shift of labor. There is a widening gap between intellectuals and those people without technological expertise or higher level education. What remains is the value meal and the dollar menu. McDonalds, although grotesque, offers great prices and quick turnaround. Every day, millions of Americans are saving money by getting the cheap breakfast, or Happy Meal for their child. If only the individual thought about how much they were spending in the long term through health-care costs, obesity, and its subsequent emotional anguish, rather than how much they saved by getting the $1 Junior Bacon Cheeseburger. Thankfully, Esther did not take her son to McDonalds that often.

Of the various concepts and theories discusses throughout this essay, the author is inclined to agree most with the interpretive, commitment to science perspective. The author generally supports theories that deal specifically on a personal level, rather than grander, abstract theories. One can critique capitalism as a whole in regards to this “Urge to Splurge”, but the real answers lie within the minds of ordinary Americans like Esther and Jocelyn. Americans (and their own government) will continue to splurge throughout this recession and beyond. If the toughest economic period since the Great Depression does not serve as a wake-up call, what will? The truth is, no single event, such as this recession, will change anything. It can only change if America’s society has a ‘shift of consciousness’ from the ‘spend now, save later’ mindset. Unfortunately, this would likely take another century to take affect. The author could not convince his mother and sister otherwise. After all, Black Friday offers the greatest sales of the year! How can one resist?

“U.S. National Debt Clock.” US Debt Clock. N.p., n.d. Web. 13 Dec 2010. .

Thiel, Stefan. “Urge to Splurge.” Newsweek 29 Nov 2010: n. pag. Web. 13 Dec 2010.

Brantly, Jill, and Patricia Lengermann. “Class Notes.” Contemporary Sociological Theory. GWU, n.d. Web. 13 Dec 2010.

Mendis, Michael. “Hyper-rationality.” Big Think 09 APR 2009: n. pag. Web. 14 Dec 2010.