Living Paycheck To Paycheck

Some very bad news came our way recently. A survey conducted by CareerBuilder.com highlights just how tough life has become for American workers. We should bear in mind as we read this that these are the people who actually have jobs.

Chicago, September 1, 2010 — As the effects of the recession linger on, one place it continues to have a tight grip is on workers’ wallets. Nearly eight-in-ten (77 percent) workers report that they live paycheck to paycheck to make ends meet. Sixty-one percent of workers said that they felt they lived paycheck to paycheck to make ends meet in 2009. Workers went on to say that sometimes they are unable to make ends meet at all, with one-in-five (22 percent) saying they have missed payments on bills in the last year. This is according to a new nationwide survey of more than 4,400 workers by CareerBuilder that was conducted from May 18 to June 3, 2010.

Workers report they have made a variety of changes to their living and spending habits to help get by. When asked what tactics they have used since the start of the recession to make ends meet, workers said the following:

• Cut back on leisure activities - 54 percent
• Used coupons or shopped at discount stores - 48 percent
• Drove less to save on gas - 37 percent
• Cancelled cable and other subscriptions - 12 percent
• Used public transportation - 5 percent

"The last 18 months have required some workers to tighten their day-to-day spending and make some adjustments to their financial futures," said Rosemary Haefner, vice president of human resources for CareerBuilder. "Our survey found that six-in-ten workers say that the recession has made them more fiscally responsible. Maintaining a budget is not only important now, but will better position workers — both personally and professionally — for the long run."

In other words, Amercian workers have rediscovered the virtue of thrift because they have no choice. This development comes after 25 years in which workers were characterized as consumers. See my post I Consume, Therefore I Am. Americans absorbed the all-important cultural message that their primary functions were to buy ever-larger houses and to shop. Many malls and other retail outlets were built for this purpose.

You will recall that the savings rate fell to zero in the middle part of the last decade. But that was not all there was to it. The imperative to "consume" was so strong that Americans were encouraged to take on huge amounts of debt to buy more stuff than their incomes could support. The spending spree was so out-of-control at the height of the Housing Bubble that workers used their ever-more-valuable houses as ATM machines to fuel even more spending.

As with so many things, the origin of this insanity goes directly back to John Maynard Keynes. In the centuries preceding Keynes, thrift was highly valued among the common people, which was just about everybody. Nobody had much, and you never knew when you might wind up on your ass. After Keynes, thrift was discouraged, despite the lessons of the Great Depression, which had been preceded by the profligate Roaring Twenties. In his book The True And Only Heaven, Christopher Lasch describes Keynes' Critique of Thrift—

Orthodox economists [prior to Keynes] had exaggerated the value of thrift, according to Keynes. They thought of the "accumulated wealth of the world as hving been painfully built up out of [the] voluntary abstinence of individuals from the immediate enjoyment of consumption," when it should have been "obvious that mere abstinence is not enough by itself to build cities or drain fens." The expectation of profits, not abstinence, was the engine that drives enterprise." Profits in turn presupposed a rising standard of living in the population as a whole and a general desire for a more abundant existence.

Thrift was a miserly virtue, as Keynes saw it, appropriate only to conditions of scarcity. Money was meant to be spent, not hoarded. It had no value in itself. The morality of saving and hard work betrayed a lack of faith in the future, whereas "enterprise" required "animal spirits" and optimism. Keynesian theory elaborated the discovery already proclaimed by the advertising industry in the 1920s that "prosperity lies in spending, not in saving," in the words of Earnest Elmo Calkins, one of the first advertisers to grasp the principle of "artificial obsolescence."

In short, the Keynesian program involves spending our way to prosperity and full employment. And this magic worked in the post-World War II era. But after the early 1980s, Americans took the "virtue" of spending money to new heights that Keynes could not have imagined and probably would not have approved of. For the American qua consumer, living on the edge of bankruptcy became the new normal. The loss of a job, or a medical crisis, or some other bad luck, could leave a household on a cliff edge staring into the abyss. And that's the sad state of the American worker today.

Dyed-in-the-wool Keynesians like Paul Krugman would like everybody to start spending money immediately to refloat the economic boat as I described in The Paradox of Thift. To jumpstart our return to more conspicuous consumption, Krugman wants massive new public spending programs. At great expense, these programs might create some jobs, which would spur some spending. But the CareerBuilder.com survey makes it abundantly clear that most Americans have no extra money to spend to stimulate the economy even when they have jobs. And many of them are cutting back to make ends meet. It would be extraordinarily self-destructive for workers living paycheck-to-paycheck to boost their spending by obtaining more credit, assuming it were available.

In The Worst Is Yet To Come In Housing, I took issue with a writer with the Wall Street Journal. Mark Whitehouse deconstructed the deleveraging story whereby "consumers" are said to be shedding their debts at a frantic pace. Instead, it turns out that beyond defaults on debt, the annualized deleveraging rate is only 0.08%. Whitehouse's insinuation was that consumers, being consumers, only know how to consume—they are unaccustomed to saving.

Even if this story were true, which it isn't according to Career Builders, we might ask whose fault it is that humans trained to consume from the day they are born only know how to consume? This so-called "Free Will" that people think they have is considerably overrated. Humans absorb the behaviors and customs of the culture they are raised in. It's just that simple, and Steve Jobs is counting on it. The worst version of this story shows up in the myth of the amoral debtor who accumulates debt that he never intends to pay off.

What we know now is that American workers can't pay down debt (or save money) because they don't have any money to spare. There will be no return to the conspicous consumption that characterized American society before the collapse of the Housing Bubble. That's all over and done with, settled, finished. Extravagance versus Thrift is a dead issue. Survival is the only issue that counts now. And survival is a much stronger instinct than a culturally-driven urge to consume.

Comments

[Victor]

I for one welcome a move away from wasteful spending and towards a more frugal outlook. I always try to make things last, rather than just buying something new because the old one is dirty or "outdated." And I am the same way about how I spend my money, most of the time.

Of course, I wish it were a more natural move, rather than one of necessity. I think a lot of the problems regarding spending are that the people aren't the ones deciding what gets sent on who, but those pulling the strings of the government, get to decide where to spend all the money.