America: The Champion of Consumption#

When it comes to buying stuff, Americans are the absolute best consumers on the planet. It’s not even a close race. The next in line is China, but they spend less than a third of what we do in a year, even though they have almost five times as many people.

Globally speaking, we’re incredibly wealthy, even if it doesn’t always feel that way. We really love buying things, and we’re not afraid to use debt to keep on doing it. Our economy relies more on people buying goods and services than basically any other major country out there.

But you have to wonder, is there a limit to all this spending?

The Cost of Constant Consumption#

Because of our huge desire to buy things, some problems have popped up:

• Our household savings rates are now the lowest they have ever been.
• High-risk, high-interest consumer lending has gone over a trillion dollars.
• This trillion-dollar figure doesn’t even include other major debts like:
  • Car loans
  • Home loans
  • Student loans
  • Medical loans
  • Informal lending like Buy Now, Pay Later (BNPL). These are also getting close to all-time highs.

So, what happens when the world’s best consumers can’t afford to consume anymore? And, maybe more importantly, could we fix everything by just buying less?

Getting Deeper in Debt? Maybe, But Some Are Treading Water#

The amount of debt is definitely growing. But there are signs that some people are managing okay.

• Americans are taking on more auto loan debt than ever before. Maybe it’s just excitement about being able to get a car again? (Like yelling, “holy be je I don’t know if I can do this but I need the car!”)
• Big stores like Amazon, Target, and Walmart are already offering discounts to people who don’t make enough money to cover the minimum cost of living in a place like New York City.
• Nearly 80% of households in NYC are considered “housing burdened.” This means more than 30% of their household income goes just to rent.

America’s Giant Share of Global Spending#

Data from the World Bank shows just how much we consume globally:

• America is responsible for about a third of all consumer spending worldwide.
• This is remarkable because we only make up about 4% of the global population.

According to the same World Bank report:

• Consumer spending now makes up 69% of our total economy.
• In comparison, China, the second-largest consumer market, only has consumption accounting for 38% of its GDP.
• While that comparison might seem a bit unfair (China still has many very poor people outside major cities who only buy basics), the European Union (EU) is a better comparison.
• When the EU is counted as a single unit, only 51% of their GDP is tied up in consumer spending.
• And over time, the EU has been spending less and less (as a percentage of their economy), while we’ve been spending more.

By basically any measure, Americans are the best consumers on the planet.

It Didn’t Happen By Accident: The Post-War Push#

This wasn’t just random chance. After World War II, America had a unique situation. The massive industrial system built to fight the war (making planes, tanks, ships, etc.) suddenly didn’t have that same demand.

After the Great Depression, the government really didn’t want these factories to just shut down and lay off workers. So, they kept going with policies, first pushed by the New Deal, that encouraged people to spend money. This gave factories and their workers a reason to keep producing.

The new problem became that the market was getting flooded with goods and services. There seemed to be a limit to how much people would naturally buy.

This is when modern, “madmen-style” advertising really took off. Companies realized they needed to create demand, not just serve the demand that was already there. A slightly grim fact: many of the men who were skilled at creating propaganda for World War I and World War II later moved into advertising, using their talents to sell products instead of selling the war effort.

The historian Kenneth Jackson pointed this out in his book “Crabgrass Frontier”:

• The year after WW2 ended, there were only eight self-contained shopping centers in America. Most shopping was still done at local, individual stores selling daily essentials.
• Just 14 years later, by the start of the 1960s, there were over 4,000 shopping centers across the country, all competing for those “sweet sweet consumer dollars.”

While America was figuring out how to get people to buy more, most other major economies were busy rebuilding factories and infrastructure that were destroyed in the war. Only after that did they start worrying about what to do with their extra production. This gave America a big head start in consumerism that has been tough for others to catch up to.

So, that’s the very short version of how we got here. But what does this mean for us today?

Modern Problems from a Consumer-First Economy#

Besides the more general issues like creating a culture of consumerism, undermining personal financial stability, corporate consolidation, using up resources, and creating waste, there are three less obvious but more immediate problems that have come from building our economy around consumers.

Plus, there are two very important reasons why we can’t really stop consuming without causing major issues.

Debt’s Impact on Workers and The Rise of Subscriptions#

An unfortunate side effect of this consumer-driven debt is that people in debt can be better, more motivated workers because they have to keep working. 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 unpaid overtime.
• Less likely to ask for better pay and benefits.

Even if you are careful with borrowing, it can be really tough to keep up with modern living costs as more and more of what we use becomes subscription-based. Even if you diligently save up for purchases, sometimes you can’t even pay upfront anymore. You need a steady income just to make sure you can cover next month’s automatic payments hitting your bank account.

Think about all those potential automatic deductions: American Express, Netflix, Hulu, Afterpay, student loans, car loans, AT&T, Adobe Creative Cloud, Microsoft Game Pass, Peloton – or if you’re a serious consumer, maybe all of them at once! If you lose your income for any reason, you don’t actually own any of these services or things outright to help you through. So, it’s much easier to fall behind, and fall behind fast.

The bad news is that as jobs become less secure, regular layoffs become normal for companies, and work becomes less formal, most people are likely to experience this “fun little financial roller coaster” at some point.

Who’s Really Driving Spending Now?#

Data on careers from the FED showed something interesting: at the peak of the pandemic stimulus money, the fastest growth in retail spending came from low-income earners. This was simply because the stimulus checks allowed them to buy things they couldn’t afford before.

Since then, spending growth from high-income earners has more than doubled that of low-income earners. Companies saw that wealth had built up during the pandemic for some people and have started offering more expensive versions of their products, aiming at the group of consumers that still has money to spend.

So, if anyone truly has the power to cut back on consumption, it’s probably high-income earners. And on a personal level, that’s likely a smart thing to do.

A report by The Wall Street Journal found that the U.S. economy as a whole now relies more on the spending habits of the top 10% of earners than ever before. This is because they are the only ones who can consistently afford high-profit, non-essential items in this kind of consumer-focused economy.

In an economy so centered on consumption, protecting these rich people (who are the main consumers) becomes the top priority. This happens even though protecting workers would probably be a better long-term solution, since better-paid and more productive workers turn into consumers anyway.

Alarmingly, a significant number of even very high-income earners are living paycheck-to-paycheck. Why? Because companies have become incredibly good at making sure there’s always something new to buy. Advertising and marketing have grown right along with consumer spending, and now they alone represent as much as 5% of our GDP. The ways they get us to buy have been perfected over decades.

Why It’s Hard to Just “Buy Less” Nationwide#

So yes, cutting back on consumption, especially low-quality imported goods, is likely a good idea for you as an individual. But doing it on a nationwide level could be very scary for the economy.

Our position as the biggest consumer market in the world gives us significant advantages:

• Many of the world’s largest companies are American. If you can build a business big enough to serve the entire U.S. market, it’s already large enough to be a global leader.
• Even when trade disputes seem strange, we have a lot of power in negotiations because everyone wants access to American consumers.

The American economy has been growing much faster than most countries in Europe, and even many in Asia now. But more of that growth than ever is just fueled by consumer spending, often on increasingly expensive goods and services. It doesn’t help that a lot of this spending has been powered by different kinds of debt.

Consumers can also be unpredictable. Basing so much of our economy on highly indebted spending means that if people suddenly get scared about a possible recession and decide to be more careful with their money, that caution alone can actually cause a recession.

Debt can only take us so far. To be reliable consumers, people need reliable incomes.

Unfortunately, a final, related problem is that a growing amount of this consumption is being provided by fewer and fewer companies. This concentration makes complex issues like consumerism even harder to untangle.

To learn more about just how concentrated our economy has become, go watch the next video!

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