'Tis the season for retailers to be jolly if American consumers empty their wallets over the next three weeks. But how can we empty our wallets if our wallets are already empty?
Consumer confidence appears to have bounced back from the low brought on by the hurricanes and subsequently high gas prices. But it's still below what it was before Katrina. And last week's survey by the Conference Board showed something of a drop in shopper enthusiasm. Households say they intend to spend a bit less this holiday season than last.
Consumer spending is now more than three-quarters of the whole national economy – a record high. There's nothing left to spend. Yes, gas prices have settled down a bit, but so have paychecks. General Motors, Merck, and major airlines are laying off tens of thousands. Job growth is anemic and pay is lousy. American families have exhausted all the coping mechanisms they've been using for years to spend more.
The first coping mechanism, which began decades ago when mens' hourly wages first began dropping, was for spouses to go into paid work. But now that most adult women are on payrolls – including even the mothers of toddlers – this strategy has generated just about all the cash it can.
How else to pay for more spending? The second coping mechanism has been to work longer hours. This past year, the typical working American put in two full weeks more at the office or factory than was the case two decades ago. Americans are now working harder than even the notoriously industrious Japanese. But we've reached the limit. I mean, we have to sleep.
Which brings us to the third coping mechanism – taking equity out of our homes. Last year alone, Americans pulled out $600 billion through refinancing. But this cash machine is also just about depleted because housing values have leveled off and mortgage rates are rising.
Where else to find the money? The final coping mechanism is to go deeper into debt. For five years now, American households have spent more money than they've earned, pushing their debt to a record high. But we've hit the wall there, too, folks. Interest payments on all that debt are exploding.
On top of that, there are tens of millions of baby boomers within sight of retirement. They have to start saving, or else their twilight years will be spent in darkness.
Put it all together and you see why we're running on empty. We're busted. We've exhausted all the coping mechanisms for spending more. Our buying binge has to come to an end.
The only question is whether the binge stops before Christmas shopping season, or whether American consumers make one big, final, irresponsible splurge over the next three weeks, and then call it quits.
Robert B. Reich is co-founder of The American Prospect. A version of this column originally appeared on Marketplace.
