Weapons of Mass Consumption

Can we win the war by stimulating holiday spending?

War is mighty expensive, as politicians are learning anew. To beat Osama bin Laden, we're going to spend heavily on armaments. We'll have to spend millions on homeland security. Oh, and Harry Potter merchandise. Don't forget about that.

Washington is abuzz with the battle over economic stimulation. In typical supply-side fashion, Republicans want to boost spending through tax cuts -- and enormous kickbacks to corporations. Democrats balk at that strategy, urging increased outlays for low-income individuals and more money for unemployment and health insurance. Both sides agree on one thing, however: We better get this money out there fast, so people can spend it on Christmas. It makes sense on the surface, as consumer spending drives the economy, and nothing boosts consumer spending like holiday cheer. Nobody wants a bad Christmas.

One of the first commentators to weigh in on the Yuletide fray was Roll Call's Morton Kondracke. In an Oct. 1 article, he argued, "If consumers don't have more money in their pockets by the end of next month, it's likely they won't spend and help lift the economy out of what indicators and analysts suggest will be a certain recession." This week Kondracke was even more impatient, arguing that if talks stall on a comprehensive stimulus package, Congress should consider a "national sales tax holiday," a bipartisan proposal that would get people's minds off Cipro.

Most Americans would undoubtedly find these arguments compelling -- if they weren't already busy making their lists and checking them twice. While Beltway types have spent the past few months wondering what it will take to make people spend this Christmas, the Consumer Federation of America and the Credit Union National Association had a bold idea: Why not ask people how much they plan to spend? The numbers are worrisome, but far from the Grinch-like predictions that many politicians are offering.

The second annual Holiday Spending Survey gathered buying predictions from 1,019 consumers between Oct. 25-28, late enough to include anthrax fears and worsening news about economic indicators. The result? Just over 25 percent of Americans plan to spend less on the holidays than they did last year. On the flip side, 57 percent of people who responded said they will spend the same amount as last year. And--tickle me Elmo! -- 13 percent plan to spend more this year. The numbers are not all that different those gathered last year: In 2000, 24 percent planned to spend less than the previous year, 56 percent intended to spend the same, and 18 percent planned to spend more. The survey also hints that fewer households are worried about consumer debt burdens this year.

"I was a bit surprised at the modest effect that the events of the last two months or so have had on household spending plans," CUNA's Chief Economist Bill Hampel said at a press conference Monday. "This is a negative report, it's just not as negative as we were expecting." Indeed, 70 percent of people plan to spend at least as much or more than they did last year. I asked what effect any stimulus package might have on the numbers, and Hampel was dubious. "I'm not sure that any stimulus package will have much of an effect on holiday spending. It could [help create] deeper spending into next year, but not so much on holiday spending."

A recent University of West Florida study reported by the Associated Press questions the assumptions behind a "tax holiday." The study notes that while shoppers do save money on reduced taxes, retailers often offset the bonus by reducing rebates and discounts. Hampel did not mention that study at the Monday briefing, but he did express reservations when I asked him about the concept's potential. "I would not expect a strong effect," he said.

Conventional wisdom says that people terrified by the Sept. 11 attacks, bio-terrorism, and sagging economic indicators will be stingy this Christmas. On the other hand, polling results suggest that conventional wisdom might be too pessimistic. Don't get me wrong: If Congress decides to drop the national sales tax, I'll gladly keep the money. If I get another tax rebate before Dec. 25, I promise to buy an extra fruitcake and some egg nog to wash it down. But don't confuse the new Christmas rhetoric with economic reality. These paeans to the holiday spirit are more about trimming politics in Christmas cheer than they are about careful analysis.

We'll all be better off when financial gurus realize that lower taxes -- not temporary macroeconomic gadgets -- make sense all the time, not just during the season of giving.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.


Get Reason's print or digital edition before it’s posted online

  • Video Game Nation: How gaming is making America freer – and more fun.
  • Matt Welch: How the left turned against free speech.
  • Nothing Left to Cut? Congress can’t live within their means.
  • And much more.