Forget commercialism! The new realities of consumption and the economy.

Juliet Schor

Further analysis of the financial crisis by Dr. Juliet Schor

Spending our way to prosperity? Not this time around.

As a "New Dream" economist, I am asked all the time: won't consuming less hurt the economy? When there's less spending, people get laid off, their incomes fall and businesses, especially small ones, go bankrupt. This question is especially urgent today, given that the recession is deepening and spreading. George Bush was widely (and rightly) criticized for suggesting shopping as the patriotic response to 9/11. Would Barack Obama be wrong if he suggested the same?

Short answer: Yes. But with this topic, there's rarely a short answer. So here's the longer one.

Let's remember, first, that the economic crisis wasn't caused by a decline in consumer spending. It was triggered by the bursting of the housing bubble, Wall Street excesses, and some other factors. Consumers are cutting back now, but the decline in spending is one of a series of falling dominos—more an effect of recession than a cause.

Even if she didn't cause the problem, can the heroic consumer can still save the day, as she has in recent recessions? Not this time around. Consumers can't afford to be the engine of growth because they've suffered traumatic losses of jobs, incomes, creditworthiness, homes, and wealth, far beyond the experiences of other recessions.  If the government were to give another tax rebate, it would most likely be saved, not spent. And if it were spent, a lot of that money would flow right out of the country, because so much of consumer spending is for imports. That's especially true at the holiday season, when people buy apparel, footwear, toys, games, household items, and other so-called durable goods. A huge fraction of those items (in the 90% range for some of the categories) are now manufactured abroad.

In a stunning reversal of the reigning "free market" or "neo-liberal" paradigm, economists across the political spectrum have recognized this and are saying that the government needs to step in with big expenditures to put people back to work. They recognize that jobs, not consumer spending, are the key. Action on foreclosures, debt, and some other issues is also needed. But the system needs bold action from its biggest player, the Federal government, to instill confidence, stabilize demand and provide leadership.

So we're getting a lot of calls that harken back to the 1930s. But old-style Depression-economics isn't the answer either. Because the planet is telling us, loud and clear, that it can't cope with business as usual (BAU).

People who are following the news on climate, bio-diversity and other ecological issues also understand that the standard remedy of getting consumers and/or government, to spend more can't work this time around. We've lost the ability to profitably or responsibly grow our way out of recession. The usual kinds of consumer spending (cars, electronics, furniture, apparel, travel) degrade vital eco-systems and have an economic cost. BAU puts us deeper into an economic hole, because every dollar of GNP creates new and unacceptable damage to the planet. A government program which mainly goes to shoring up a failing automotive infrastructure (roads and bridges) suffers from the same problem. It's throwing good money after bad. The latest findings about climate are that we need to stabilize greenhouse gases in the atmosphere immediately. Whatever government and consumers spend on needs to reflect that reality.

So where does that leave us? We need to do more sharing—job sharing, property and income re-distributing, and sharing of access and know-how. This time the economic pain needs to be assuaged by deeper structural changes that re-introduce fairness into our system. That's not just moral, it's also good economic sense. The deepest, underlying structures of inequality are ultimately at the root of why we got into this mess. Reversing the dramatic growth in inequality will help us get out of it.

And yes, there are opportunities for spending. But they are for purchases that enhance and re-generate the planet and its people, such as buying from local food systems, hiring the unemployed to provide services (especially green ones), and supporting non-profits that are solving, rather than creating problems. It's good to spend on businesses that are truly sustainable, especially those that are expanding the green economy. Those patterns of spending, which new dreamers are in the forefront of, are key to the structural transformation toward more equality, fairness and sustainability. So here's to a local, frugal, just, and fun holiday season. More music, less wrapping paper!

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