Many Americans spent well beyond their means during the bull market of the 1990s. Harvard economist and best-selling author Juliet B. Schor, who has studied the phenomenon, calls it "New Consumerism" -- a movement she says was fueled by status buying and debt spending. So is the slowing economy the result of a movement away from New Consumerism? Schor isn't convinced. She thinks some consumers are downshifting, but not enough to be a driving force in the business cycle. And in turn, she doesn't think a slowdown, even a recession, would do much to tame the psychology of the New Consumer.
On Jan. 19, BusinessWeek Online Correspondent Nicole St. Pierre spoke with Schor, author of the 1998 bestseller The Overspent American. Here are edited excerpts from their conversation:
Q: Your book suggests people should downshift to a less material lifestyle. Retail sales were the lowest they've been in years this past holiday season. Do people finally have enough stuff? Are they taking your advice?
A: There was a move toward downshifting that started even before the economy started to show signs of slowing. I actually think that will continue whether the economy is in recession or expansion. There's a baseline trend between downshifting and the business cycle, but many of downshifting's catalysts are not economic. High levels of stress and job burnout, combined with a lack of fit between a person's daily life and how they really want to live, has caused many people to downshift spending.
On the other hand, it's obvious a great [number] of people choose to temporarily downshift during a recession because they have fewer opportunities in the market. We saw a whole lot of that in the 1980s. In the 1990s, when those people made some money, they started spending it again. That spending was fueled by something called New Consumerism.
Q: How is New Consumerism different from plain old-fashioned consumer spending?
A: There was a real shift in the process of social comparison in the past decade. The upper-middle-class lifestyle became an emulative target throughout the income distribution. Sure, people always kept up with the Jones, but the Jones have become people in the top 20% of the income bracket. The broad middle class and those below no longer aspire to have a modest, middle-class standard of living, like they did 10 years ago.
Q: What caused the change in consumer mentality?
A: Part of what we saw in the 1990s was a tremendous upsurge in luxury consumption. There was an increase in the number of products that had luxury versions. I remember getting a catalog from a store that sold bed sheets. Some sold for $1,000. Part of what happened in the latter part of the 1990s is that a whole group of people suddenly saw a huge increase in their wealth. Many went out and spent that on very expensive items, like bed sheets, and those luxury markets grew. That's where you see the most direct evidence of the stock-market boom and consumption. You have a more general phenomenon, in which rising asset values spur consumption, the so-called wealth effect, which is also responsible for cyclical changes in spending patterns.
Q: In your book, you say technology and the media helped shape unrealistic consumer exceptions. Do you see that changing?
A: The bull market shifted income distribution and boosted the incomes of some wage earners, and the media publicized that trend. Television has become extremely important in conveying consumption information, and will continue to play that role. That's important, because people develop their sense of what others have through media and then compare what they see on TV to the way they live. The problem is, TV gives a greatly distorted upward bias of how Americans live. It displays lifestyles of people in the top 20% of their income bracket. Ten years ago, the system of comparison was much more face-to-face. We saw what other people have because we went into their homes. For a variety of reasons, technology being one of them, there are lower levels of social interaction now.
As for technology, it has given us a slew of new products, and there continues to be a certain amount of prestige associated with being an initial adopter. The problem is, people who can't really afford new products -- and probably don't need them -- continue to compare themselves to those who can. International trade is also broadening the consumer market, particularly among luxury and high-end products. You no longer have to go to Madison Avenue to buy pricey Italian linens. In some cases, you can buy them at a store right down the street.
Q: But now that many Americans have seen their paper wealth shrink, won't consumers abandon New Consumerism ideals and tighten reins on spending?
A: You would think that, but we're living in a world different from the past. In addition to a New Consumerism mentality, we have a proliferation of credit vehicles, which people can get even if they have no collateral. It's much easier to go into debt on today's credit cards than on any previous credit instrument. Simply because there's a real lack of difference now between paying for something and borrowing money for something. That's what makes credit cards such seductive instruments. In the 1990s, consumers who adopted New Consumerism took on unprecedented amounts of debt. It really remains to be seen whether long-term spending patterns will drastically change in a slowing economy or whether a slowdown will prompt people to save.
Q: Your book also claims New Consumerism has had an ill effect on society. Can you explain that?
A: People are withdrawing from the old ideal of public provision for many things. In a world where consumer norms are being up scaled more rapidly than income, there has been a strain on people's finances to keep up with norms. For instance, as aspirations rise much more rapidly than income, there's been rising pressure for a tax revolt. If you get into a world where people start to shift to private provision -- for instance, by moving into a gated community with private security guards -- many Americans become less willing to support the public version. The public becomes the provider of last resort, serving only low-income and poor people, and in this country there's also a racial dimension to that.
Q: If every consumer downshifts to a less expensive, simpler lifestyle, as your book The Overspent American suggests, wouldn't that exacerbate an economic slowdown?
A: Any sudden downturn in consumer demand can trigger recession. But the way downshifting has been happening is primarily a labor market phenomenon. Reductions in labor supply translate into changes in consumer demand. It's not people saying, "I'm going to stop spending money." It's people saying, "I want time to enjoy my life, so I'll earn less and deal with it." Because the supply of labor to the market is reduced, there's simultaneously a decline in spending and goods and services produced.