The Economy Needs Retail Therapy

Consumers in the U.S. should spend money to stimulate the economy and help it recover from the financial meltdown. Pro or con?

Pro: Retailers Create Jobs

In mid-October, the U.S. Census Bureau announced that advance estimates of September U.S. retail (which includes autos) and food-service sales declined 1.2% from this past August and 1% from September 2007. That’s not good at any time, but it bodes particularly ill as we enter the all-important holiday shopping season, when the nation’s retailers actually make their profits. It’s time for shoppers to return to the stores.

Amid the U.S. financial crisis, other sectors are suffering, too, but few are as critical to overall economic health as retail. By spending responsibly, shoppers keep people working and the economy humming. After the combination of the dot-com crash and 9/11, the U.S. economy could easily have slumped dramatically. Instead, the U.S. consumer kept the economy afloat. Consumer spending is approximately 70% of overall gross domestic product, so a continuing drop in retail sales will result in growing unemployment at the store and manufacturing levels, rippling throughout the greater economy.

But the nation’s stores also provide other, less measurable benefits. Shopping provides socialization, which is desperately needed in challenging times. It lifts moods, provides human contact, and gives people a feeling of control during a period when nothing seems under control.

Given the nation’s credit woes, it’s easy to understand why shopping has gotten a bad rap. The key is to rev up spending, not overspending. Certainly, no one should buy beyond his or her means. But those who can afford to do so, should get back to the shops to help repair our fractured economy.

Con: A Dubious Remedy

“Ask not what your country can do for you, but how much you can spend for your country.”

That’s been the meme for the last few decades. On the surface, it seems very straightforward: People spend money, and then companies make more and hire new workers to keep up with the demand. But when we look deeper, this isn’t so cut and dry.

Companies don’t exist to create new jobs; they exist to create profits for their stakeholders. When they make more, they have plenty of places to use the money. They can pay down debt, use it for R&D, or buy what they need. Creating new jobs is something they do when they need to do it, not as an automatic response to better times. And to save money, they might just go off and create five new jobs overseas for the price of one in the U.S.

In an economy in which dual-income households are the norm and the average family carries a debt of $8,000, we can’t keep spending in the hope of buying ourselves into a new job. Of course we need to keep buying certain things, and if you want to buy something and can afford it, then by all means go out and get it. But a new pair of shoes or even a new TV isn’t going to rescue the economy from its malaise. Saving as much as possible should be your primary concern when things get tough.

Opinions and conclusions expressed in the BusinessWeek.com Debate Room do not necessarily reflect the views of BusinessWeek, BusinessWeek.com, or The McGraw-Hill Companies.

Reader Comments

sam

First, they need some money to spend. We need to distribute personal income downward.

phil

I really need a new car--the one I have is 14 years old. But how do I know I'll be able to make the payments six months from now? So I'll wait.

Matt

The beauty of free markets is they encourage thoughtful business practices, better business plans, and more competent leadership at the top, especially during times of economic distress. For the consumer to keep spending so poorly run companies can stay afloat, seems like a soft solution for a problem that requires far more disciplined, resolute action.

You don't put a Band-Aid on a wound that requires stitches.

Strategery

This time around, it is the responsibility of big business to keep the economy going. Too much money has stayed at the top in this so-called trickle down economics. Consumers cannot do it anymore. Spend our way out of a recession? Is that a joke? First off, many large purchases are made on credit; either credit cards, home equity lines, or cash-out refinancing. Second, a huge number of consumer goods, including many durable goods and food, are imported. Buying imported goods provides little benefit to the American economy or workers, and any savings from the imports are not passed on to the consumers. Third, real wages have fallen, especially in the retail sector as Wal-Mart and other low-paying chains have depressed wages. The best thing to do is for everyone to look out for themselves--just like the greedy CEOs. Save your money, pay off your debts, close your wallet, park your car, buy American.

Sara

With what money are consumers going to spend? That is the problem. The $700 billion-plus bailout would have been better served by giving it to the middle income people who work very hard for very little. They are the ones struggling and that promote stability. They are the backbone of this country or once were. America is lost. RIP.

Alexandra

What money? The government and the CEOs have absconded with our money. Those of us who still have a job must save every discretionary penny against the coming "pink slip" storm.

Trey

You can't just blame the high end. Where is the sense of responsibility on the low end? Why should we redistribute wealth to people who have shown they don't know how to use it?

JR

Spending money is only a quick, temporary fix. We need long-term, sustained sales. Consumers need to get their credit under control before this can happen. Even once they do, the growth will not be as large as it was in the past, because most of the past growth was due to debt and not sales. Also consumers' credit ratings will have taken a hit, making it harder to get short-term credit. Business will also need to change to become as profitable again. With the competition from small startups heating up, they will need to become flexible once again to keep pace with the needs of an evolving customer. If they don’t become flexible, businesses will need better strategic leadership and need to take greater risks. Due to the number of recent layoffs, I am assuming businesses see these current economic factors as long-term problems, so they are slimming down and trimming the fat. When you combine high unemployment and tighter competition with stagnant salaries and poor leadership, I just don't see much growth for large businesses. The best and brightest are better off taking their chances with startups. They may be our only hope to pull us out of this recession.

Brandon

First and foremost, Sara is the only person on this debate forum who may have hinted at the actual saving of the American economy. Spending is the key to ending a recession or depression as history has indicated. "Trey" you are an idiot and BW needs to restrict idiots like you from posting on the boards and further lowering the collective IQ of the BW online reader. Most and I repeat most of the people who are "middle class" or lower did not choose to be so, nor did they squander money that was given them and now are in a financial quandary. No. Most of these people are very hard working people who might have made a conscious choice of something in their lives to be more important than money, i.e., family, kids, ya' know the future of this country and world. The key to the end of all this bad economy would have been for the government to take the money allotted to and squandered by AIG and split it evenly among all of the 18+ consumers who are legal residents of the USA and tax it fairly generously and return about 1/8 of the money in taxes to the government directly, and then people would go spend the money back into the economy and rejuvenate and restimulate the economy.

LAO

Last I checked, retail sales in this country amounted to $10,000 a year for every man, woman and child, or about $23,000 a household. Yet retail only provides roughly $10 an hour jobs for about 16 million people--that is $20,000 a year full time. Another 4 million find work in transportation. The proportion of retail goods that are imported is huge-- just try finding anything made in the U.S. It takes 20 households spending all that money on retail to provide one lousy retail job. The storage industry is booming, because most of us already have more than we need. Those 20 households could drastically cut their retail spending, save a bundle for education and retirement, and then provide just $1,000 a year each to buy services to replace the salary of a local out-of-work retail employee. Send another $1,000 a year to the state to replace lost sales tax. No one has to be unemployed, and a lot of manufacturing and transportation energy would be saved. Throw in a few green jobs, and communities would thrive. How is that not an economy that serves the people for whom it exists? It would be a far better model for emerging markets to emulate than what we offer them now.

MDB

Consumers in the U.S. should spend money to stimulate the economy and help it recover from the financial meltdown. Yes, if consumers fund this spending out of their capital, savings, etc.-- instead of going into more debt.

Question Authority

Spend to boost the economy? Ri-i-i-ght. I'm not in much debt (saw the writing on the wall a few years back), and I'm not digging in any deeper. That's a fool's game.

I'm putting money in savings when I can. I'm paying down remaining high-interest debt if I get any "tax rebates."

My advice to the bankers is like what my Dad told me when I was a teen: "If you ever get busted, don't call me. You got in there, clown. You get out."

Jason

Money, financial markets, equity, and so on are like bodies of water--specifically rivers. When it's damned up for too long, the balance is upset and the global economy is effected.

So (a) who has the most money (e.g., individuals, countries, companies), and (b) what can you do to make them spend?

Louis

The consumers should always spend responsively. I believe in buying good quality products that will last longer, instead of buying cheap products that you need to replace often. It's also good for the environment, less waste.

Dan

I was taught by my grandparents to always pay cash and don't buy what you can't afford. Because off this, I have not used the equity in my house, ranch, farm, or business to invest. I used cash to buy gold, silver, palladium, and platinum. Now I get to pay for all those who gamble and lose.

dan

Trey is right on. The government promotes debt by giving tax write-offs for interest and discourages savings by taxing gains. This has converted the good old USA from the world's largest creditor nation into the world largest debtor nation. How about legislation that rewards savings and penalizes debt?

Haven't heard that from either party. They just want to bail out the idiots who buy what they can't afford and spend what they don't have.--Dan

m.r.

Why is the consumer faulted for overspending and living beyond their means? Their governments, at all levels, federal, state, and city are doing the same. And what about companies that take on excessive debt? And what about government and business that encouraged consumers by ads, low interest rates, and low prices to buy more when consumers were overextended with debt? Hypocrisy abounds.

Bill

I do not see where the consumer is going to get the money to spend. With the bailout and the political perks added to it, consumers are looking at one very hefty tax increase. It is the businesses that need to stimulate the marketplace. If you cannot compete, get out of the business; someone will come along and take your place.

Chris

What's the point of this article? Everyone now knows that the consumer-based economy is what got us into this mess.

MSG

It is clear that the Age of Credit is coming to an end. The Age of Credit, which seems to have begun in earnest about 1980, can be defined by a steady decrease in personal and corporate savings and a concurrent increase in personal and corporate debt. Its most significant trait, on both the personal and corporate level, seems to have been an almost obsessive focus on short term gain. Whether we are talking about a new home or cheap off-shore labor, little attention was given to the long-term effect of our choices. The end result is that we have families walking away from homes they can't--and never really could--afford, and business with warehouses full of products made off-shore that no one can afford to buy. So now what? Well, my own suggestion is that we, as a nation, abandon our commitment to globalization and focus instead on localization. By that I mean, local and regional energy production, regional food production, etc.

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