As if economists weren’t already killjoys enough, someone just sent me an article entitled, “Do Not Buy Dad a Tie: The Economist’s Guide to Giving Christmas Presents that People Actually Want.” The author argues that most presents are things people wouldn’t buy if they were given the cash instead of the gift box, and therefore a significant part of a gift’s price is wasted—a “deadweight loss” in economists’ jargon. Think of that next time you put a package under a tree, menorah, or Festivus pole.
Fortunately for the 70% of the U.S. economy comprised of consumer spending, most of us follow our hearts, traditions, and social pressures and keep right on spending. As of December 22, online holiday sales for 2011 approached $32 billion, just below the total for all of the 2010 season. The data have been less consistent for bricks-and-mortar retailers, but the pictures of bargain-hungry shoppers trampling and pepper-spraying each other suggest that many of our fellow citizens are still willing to spend money in a way that makes economists cluck with disapproval.
The remarkable thing is that despite tight credit and high unemployment, that 70% figure has held strong, down only by a rounding error from its mid-2009 peak—and remember the overall economy has been growing since then, meaning that consumption has maintained its share despite the considerable headwinds that are trying to blow us away from the cash register and shopping website. Although we just learned that we spent less in the third quarter of 2011 than originally thought, the drop was entirely in services spending, especially for health care; our spending on stuff just kept growing. The great American national pastime remains shopping, despite the remarkably competitive NFL season.
I don’t draw a dismal conclusion from all this shopping, although a higher savings rate might get us through our deleveraging ordeal more quickly. I see it as an expression of an optimism that those of us who stare at financial data all day may have missed. A couple of weeks ago, I wrote that investors’ mistake may be that by trying to avoid the next great crash they are missing the next great opportunity. Shoppers don’t seem to be making the same mistake.