How America Got So Good At Buying Sh*t
How America Got So Good At Buying Sh*t
Source: YouTube How Money Works
Americans are the best consumers on the planet and it’s really not even close. The runner up is China, and they spend less than a third of what we do in any given year, even though they have almost five times as many people. It might not always feel like it, but by global standards, we are incredibly rich. We love buying and we aren’t afraid of going into debt to keep doing it. More of our economy depends on the consumption of goods and services than basically any other major country in the world. But this has to have a limit, right? As a direct result of our own insatiable desire to consume, our household savings rates are now the lowest they have ever been and high-risk, high-interest consumer lending has surpassed a trillion dollars. That doesn’t include things like car loans, home loans, student loans, medical loans, or informal lending like buy now pay later, which are also approaching all-time highs. So what is going to happen to the best consumers on the planet if they can’t afford to consume anymore? And more importantly, could we solve all of our problems by just buying less the of the shit?
News anchor: The ocean of debt is getting deeper, but there are indications that some are doing a better job treading water.
News anchor: Americans taking on more auto loan debt than ever before. It’s probably because they’re just rejoicing at the fact that they can get a car again.
A consumer: Holy be jeez. I don’t know if I can do this but I need the car.
News anchor: Amazon, Target at Walmart are already offering discounts to consumers.
News anchor: Don’t make enough money to meet the minimum cost of living in New York City and nearly 80% of households are considered housing burdened, which means, more than 30% of household income is going towards rent.
According to data from the World Bank, America is responsible for about a third of all consumer spending worldwide, even though we only represent 4% of the global population. According to the same report, consumer spending is now 69% of our total economy. For comparison, in the second largest consumer market in the world China, consumption only accounts for 38% of their GDP. Now that might be a bit of an unfair comparison. Outside of its major cities China still has a lot of people who are very poor and don’t buy things beyond the bare essentials. The European Union is a more comparable peer. But when counted as a single group, only 51% of their GDP is tied up in consumer spending. And as time goes on, they are spending less and less while we are spending more. By basically any metric, Americans are the best consumers on the planet. And this wasn’t by accident. After the second world war, America had a problem. The industrial juggernaut we had built up to fight the war in Europe and the Pacific no longer needed to make planes, tanks, ships and munitions for the war effort. After the Great Depression, the government really didn’t want to let these factories go idle. So a continued policies first pushed by the New Deal to encourage consumer spending to give those factories and their workers something to feed. The problem suddenly became that, the market was saturated with goods and services; and there was presumably a limit to what people would buy. It was at this point that modern madman style advertising became a thing as companies now needed to create demand rather than just catering to the demand that already existed. A not so fun fact is that a lot of the men that honed their craft created propaganda for the first and second world war pivoted to advertising where they could use their skills to sell products instead of selling the nation’s war efforts. The historian Kenneth Jackson noted in his book Crab Grass Frontier, that the year after the war ended, there were only eight self-contained shopping centers in America. Most purchases were still done at local standalone stores that catered to the essentials for everyday life. Just 14 years later though, at the start of the 1960s, there were over 4,000 shopping centers across the country, all vying for their sweet sweet consumer dollars. At this time, most of the other major economies around the world had the more immediate problem of rebuilding their factories and infrastructure that were destroyed during the war. Only after that, did they have to start worrying about what to do with their extra industrial output. This gave America a head start in consumerism that has been hard to catch up to. So that’s the incredibly brief story about how we got here.
But what does this actually mean for us today? Apart from creating a general culture of consumerism, the undermining of personal financial stability, corporate consolidation, resource depletion and waste generation, there are three less obvious, but more immediate problems that consumer first economic policies have created. And two very important reasons why we can’t really afford to get off the treadmill of consumption. The first problem we slowly created for ourselves is that consumerism made luxury, convenience and experience cheap - but everyday life expensive. The optimization of industry, combined with globalized trade, finance, and shared expertise, has made consumer goods incredibly cheap by historical standards. Adjusted for inflation, in the 1960s an airline ticket from New York to Europe would cost $6,000. A fridge, $4,000. A massive 21 inch color TV was almost $9,000. A home microwave oven produced by Ratheon was $5,000. And even modest home furnishings were worth the equivalent of tens of thousands of dollars today. Added together, these consumer goods and services that probably seem pretty basic to you were collectively worth as much as a house. That’s because, back then, consumer goods were luxuries - but housing was a pretty basic purchase. Today, global industry has made consumer goods extremely cheap - but constrained resources like land very expensive. You could go on an extended European Vacation, buy the latest array of electronics and home appliances, and probably spend less than a few months rent. All of these goods combined wouldn’t add up to a down payment on a home in most cities - let alone an outright purchase. Now, hot take alert. But a lot of this stuff is actually pretty great. Fridges, washing machines, and modern computers, do make our lives better and easier. Even modern services like YouTube can be great if consumed in moderation. And I am not just saying that because I am a dirty, stinking, hypocritical creator. Modern conveniences have improved our lives. And if consumerism stopped there, we could probably have found a happy balance between cheap modern amenities, without the trade-offs that came with it. But the problem was, it was almost impossible to stop it there. Building an economy on consumers meant we had to keep on consuming. So it’s time to learn how money works to find out what happens when we are finally full.
It’s the easy and trendy thing to write off consumerism as just a generically bad thing. So as much as I would love to make an easy video about how consuming modern goods and services is everything wrong with the world, there is a little bit more to it than that. A lot of things we consume genuinely increase our standard of living and quality of life. Somewhere between you leaving society behind to live off the land, and taking out a buy now pay later loan for a temu order, is some happy medium of spending on consumer goods and services.
Economists call the simple idea the law of diminishing marginal utility, where, as consumption increases, the additional satisfaction utility gain from each additional unit consumed falls. Normal humans just call it not overdoing things. And the strongest evidence to support the idea that we are overdoing things is that consumption is actually surprisingly equitable. According to data prepared by the US Bureau of Labor Statistics, the lowest quintile households spent approximately $1.37 trillion on personal consumption in 2022. The top 20% of households on the other hand, spent just over $6 trillion. This still means that the wealthiest households are spending more than4 times as much on consumer goods and services as the poorest households. But that’s still relatively equal - considering that the top 20% of households earn more than 14 times as much. So what does this tell us? It shows that, for most people, there is a basic level of consumption that is needed to live a normal life. And especially here in America, there are certain expenses that are really hard to avoid. According to the report, the biggest cost for most people was, unsurprisingly, housing. Housing can’t be mass produced in a factory on the other of the world like most consumer goods. So it’s become really expensive. We have already covered that problem. Transport was the other major cost for most households, as in most parts of the country, you need a car to get around. And for low income households, that is a serious financial commitment. This can also be traced back to the consumer boom of post-war America, as lobbying from the automobile industry to build car-friendly cities. And the mass adoption of remote single family Suburban developments meant that most of America was built around the car. The few East Coast cities that are either walkable, or have reliable public transportation are unrealistically expensive for low-income households in other ways. So without a lot of sacrifices, most people are forced into owning a car. Personal spending on Healthcare is also a uniquely American budget item that pushes up our numbers without really delivering results any different from those Godless, freedom hating Europeans. Either way, it’s easy to blame consumerism on consumers. But a lot of these expenses are extremely hard to avoid. Even if people don’t have the money to pay for it. According to to the same report, this consumption of the bare essentials meant that the bottom 20% of households were spending $727 more than they made after taxed every year. Now you might be wondering, how can a household spend more money than it makes every single year? The answer is debt. Of course. But also, the people in the bottom 20% change every year. If someone loses their job and it takes them a while to get work again, they may end up in the bottom 20% temporarily until they find a new job, and jump back up to whatever income bracket they were in before. This means that they will go through their savings, or rack up debt to keep themselves functioning but they should be able to recover once they are back on their feet. An inconvenient side effect of this consumer-driven debt is that, people in debt also make for better, more motivated workers because they need to work, or else… Studies by the National Institute of Health found that workers with high levels of debt were less likely to change jobs, more likely to work on paid overtime, and less likely to make demands for better pay and benefits. Now even if you are responsible with your borrowing it can be really hard to maintain modern living standards as more of what we consume transitions to being subscription based. Even if you do save diligently for purchases, sometimes it’s not even possible to pay upfront anymore. So you need a regular income to make sure you can cover next month’s round of automated deductions from your bank account, whether it can be from American Express, Netflix, Hulu, Afterpay, your student loans, car loans, AT&T, Adobe Creative Cloud, Microsoft Game Pass, Pelaton, or if you are a true power consumer, all of them at once. If you lose income for any reason you don’t actually own anything to tide you over. So it’s a lot easier to fall behind a lot faster. Now, the bad news is that as jobs become less secure, regular layoffs become the corporate norm, and work becomes less formal, most people are going to experience this fun little financial roller coaster at some point in their life career. Data from the Fed showed that, at the height of the pandemic era stimulus, the fastest growing share of retail consumer spending came from low-income earners. This was simply because, stimulus checks let them make purchases that they weren’t able to afford before. Since then, growth in spending from high income earners has more than doubled that of low-income earners. Companies have seen pandemic era wealth accumulation and gone up market on most of their items. Catering to the group of consumers that still has purchasing power. So if anybody really has the power to stop their consumption, it’s high income earners. And on an individual level, that’s probably a really good idea. A report by The Wall Street Journal has found that the US economy as a whole now depends more on the spending habits of the top 10% than ever before. Because they are the only ones that can reliably afford high margin non-essentials. In such a consumer centric economy protecting those rich people who are the consumers becomes the most important objective, even though protecting workers would be a better long-term solution, because better paid and more productive workers turn into consumers anyway. An alarming amount of extremely high income earners are living paycheck to paycheck, because companies have gotten so good at making sure that there is always something to purchase. Advertising and marketing have grown in line with consumer spending, and now by themselves represent as much as 5% of GDP. And the formula has been perfected over the decades. So yeah a pullback in consumption, especially, imported lowquality goods is probably a good idea as an individual. But on a nationwide level, it could get very scary our status as the biggest consumer market in the world, gives us a lot of advantages. The reason that America has so many of the world’s largest companies is because, if you can scale a business to address the entire US market, it’s already big enough to be globally dominant. And yeah. As dumb as the current trade wars might seem, we do have a lot of negotiating power because, everybody wants access to our consumers. The American economy has been growing much faster than most countries in Europe. And even now most countries in Asia. But more of that than ever is just fueled by consumer spending of increasingly expensive goods and services. It doesn’t help that a lot of the spending has been fueled by debt in some variety. Consumers are also fickle beings. Basing so much of our economy on highly indebted consumption means that if people get scared all at once about even the possibility of a recession and decide to be a little bit more careful with their money, that will cause a recession. Eventually debt can only get us so far and to be reliable consumers, we need reliable incomes. Unfortunately the last real problem with this is that a growing share of this consumption is being provided by a rapidly shrinking share of suppliers which is going to make issues like consumerism almost impossible to unravel.