We shop, therefore we are. This is not exactly the American credo, but it comes close to being the American pastime. Even infants and toddlers quickly absorb the consumer spirit through television and trips to the supermarket ("I want that" is a common refrain). As we age, consumption becomes an engine of envy, because in America the idea is that everyone should have everything--which means that hardly anyone ever has enough. The notion that wants and needs have reached a limit of material and environmental absurdity, though preached fervently by some social activists and intellectuals, barely influences ordinary Americans. They continue to flock to shopping malls, automobile dealers, cruise ships, and health clubs. There are always, it seems, new wants and needs to be satisfied.
Although consumerism now defines all wealthy societies, it's still practiced most religiously in its country of origin. Indeed, Americans have rarely so indulged the urge to splurge as in the past decade. Look at the numbers. In 2002, consumer spending accounted for 70 percent of U.S. national income (gross domestic product), which is a modern American record, and a much higher figure than in any other advanced nation. In Japan and France, consumer spending in 2002 was only 55 percent of GDP; in Italy and Spain, it was 60 percent. These rates are typical elsewhere. Even in the United States, consumer spending was only 67 percent of GDP as recently as 1994. Three added percentage points of GDP may seem trivial, but in today's dollars they amount to an extra $325 billion annually.
This spending spree has, in some ways, been a godsend. Without it, the U.S. and world economies would recently have fared much worse. During the 1997-98 Asian financial crisis, the irrepressible buying of American consumers cushioned the shock to countries that, suddenly unable to borrow abroad, had to curb their domestic spending. Roughly half of U.S. imports consist of consumer goods, automobiles, and food (oil, other raw materials, and industrial goods make up the balance). By selling Americans more shoes, toys, clothes, and electronic gadgets, Asian countries partially contained higher unemployment. U.S. trade deficits exploded, From 1996 to 2000, the deficit of the current account (a broad measure of trade) grew from $177 billion to $411 billion.
Later, the buying binge sustained the U.S. economy despite an onslaught of bad news that, by all logic, should have been devastating: the popping of the stock market "bubble" of the 1990s; rising unemployment (as dot-corn firms went bankrupt and business investment--led by telecommunications spending--declined); 9/11; and a string of corporate scandals (Enron, WorldCom, Tyco). But American consumers barely paused, and responded to falling interest rates by prolonging their binge. Car and light-truck sales of 17.1 million units in 2001 gave the automobile industry its second-best year ever, after 2000. The fourth- and fifth-best years were 2002 (16.8 million units) and 2003 (an estimated 16.6 million units). Strong home sales buoyed appliance, furniture, and carpet production.
To some extent, the consumption boom is old hat. Acquisitiveness is deeply embedded in American culture. Describing the United States in the 1830s, Alexis de Tocqueville marveled over the widespread "taste for physical gratification." Still, the ferocity of the latest consumption outburst poses some interesting questions: Why do Americans spend so much more of their incomes than other peoples? How can we afford to do that? After all, economic theory holds that societies become wealthier only by sacrificing some present consumption to invest in the future. And if we aren't saving enough, can the consumer boom continue?
Let's start with why Americans spend so much. One reason is that our political and cultural traditions differ from those of other nations. We do some things in the private market that other societies do through government. …