Heading into the first "official" shopping day of an uncertain season, I found in Charles Fishman's The Wal-Mart Effect a revealing observation about underwear sales. It seems pertinent to my study of consumerism, taxes and government.
A Hanes executive tells Fishman that his company saw big nationwide sales increases from its move into Wal-Mart stores. So big, that population growth and market share gains couldn't account for it all. As analysts dug into the numbers and saw increases across almost every category, one explanation seemed likely.
Consumers were buying more underwear.
The nickels they saved at Wal-Mart weren't "saved" at all. The money went into a drawer as another pair of socks or an extra package of boxers.
Sure, some Wal-Mart customers spent their savings on a can of soup or needed school supplies, but the overall sales numbers didn't lie. They also bought more stuff that they didn't actually need to get through the day.
Small government advocates usually make the argument that government should balance its budget over the kitchen table, like good old American families do. Maybe a few real families have an underwear line item and carefully manage their inventory to historic levels, but in aggregate, Wal-Mart's substantial cross-section of the nation buys more stuff than it needs.
It spends the money because it has the money.
If that were all, so what? The home sock surplus creates jobs for greeters and Thai knitting mills.
Writing about the recent economic shocks, Robert J. Samuelson speaks to the same barely noticed phenomenon.
The “wealth effect” refers to the tendency of people to adjust their spending as their wealth — concentrated heavily in housing and stocks — changes. When wealth rises, spending strengthens; when wealth falls, spending weakens. For the past quarter-century, higher stock prices and home values propelled the economy forward by inducing Americans to spend more of their incomes and to borrow more. In 1982, the personal saving rate was 11 percent of disposable income; by 2006, it was almost zero. The lowered saving rate added about $1 trillion annually to consumer spending — more shoes, laptops, books — out of a total of about $10 trillion.
In other words, consumer behavior has exhibited an inability to restrain spending or reserve for a rainy day that looks remarkably like "tax and spend."
Happy Thanksgiving!
[Cross-posted from Growth and Justice Blog]
