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.