Why Brisk Sales Will Make Holiday Hangover Worse

I miss the days when dangerous and unsightly Black Friday stampedes got blamed on our market-maddened society's misplaced priorities. Now even the police have gotten into the act of attributing Black Friday mischief to the "tough economy," which doesn't make a lot of sense: What kind of recession is it where money troubles drive people to shop more aggressively? 

As I point out in Reason's December issue, believers in economic stimulus need to explain how you can have private spending higher than its pre-recession level and still claim the economy is suffering from an insufficient level of demand. If our demand-side collapse has now been re-inflated – and spending figures indicated it had been long before this Festivus season got underway – then why do we need Paul Krugman's invasion by space aliens to cure the recession? 

This holiday weekend's good news for retailers just sharpens the point. By most accounts, the post-Thanksgiving shopping rush looks like a success (never mind that they were saying pretty much the same thing last year). Forbes, citing the National Retail Federation, says the number of Black Friday shoppers was up 6.6 percent above last year's statistic. In fact, shoppers have been so enthusiastic that 25 percent of the 226 million Americans in stores this weekend actually jumped the gun, and began their shopping on Thanksgiving day itself. Stores with early hours like Wal-Mart and Target sold out the bulk of their wares before Friday. 

A nation has to dig deep to spend like that, and sure enough, the Bureau of Economic Analysis shows that the personal savings rate has plummeted in recent months. From June 2010 through June 2011, personal savings – disposable personal income less personal outlays – stayed between 5 and 6 percent. Since then the savings rate has dropped steadily and in October clocked in at an anemic 3.5 percent of personal income. These data are always subject to revision – so note that when the savings rate was this low during the Bush Administration, popular opinion held that the national savings rate was actually negative. 

Another important piece of pro-spending propaganda holds that ever since the internet changed everything, online shopping has been driving retail. This claim is belied by Census Bureau data [pdf] on e-commerce, which show that online sales still make up less than 5 percent of U.S. retail. But I seem to be the only person who notices what a humble share that is. Everywhere else, I see enthusiastic headlines like "Big Cyber Monday expected to follow strong Black Friday" in ComputerWorld: 

"Despite some analysts' predictions that the flurry of brick-and-mortar retailers opening their doors early for Black Friday would pull dollars from online retail, we still saw a banner day for e-commerce with more than $800 million in spending," said comScore chairman Gian Fulgoni, in a statement. "With brick-and-mortar retail also reporting strong gains on Black Friday, it's clear that the heavy promotional activity had a positive impact on both channels."

ComScore, an online traffic tracker, noted that Black Friday brought in $816 million in U.S. online sales, making it the heaviest online spending day to date this year. Friday's online sales revenues represented a 26% spending increase compared to the same day last year.

Huzzah to anybody who can sell product and make payroll in these troubled times. But at what point will Keynesian interventionists admit that the problem they understand (the decline in spirited animal spending) has been solved and the problem they don't understand (levels of indebtedness that have rarely been seen in our nation's history) is out of control? 

In retrospect, I feel I may have been too harsh on the Affluenza guys back when the recession was still officially on. These folks spent decades bewailing what TV punk rockers used to call "the whole sick society" that caused people to lay waste their fortunes with McMansion-sized yachts and yacht-sized SUVs. But then when they got a real economic collapse, none of the Live Simplers were happy about it. 

At the time I thought that showed bad faith, but maybe the Live Simplers were right to warn that even broke Americans – even in an era when being broke has a kind of cachet – would still end up spending themselves into stupors.  In Keynesian terms, a Christmas rush is uncomplicated good news. And yet unemployment is above 9 percent, nobody wants American land anymore, and the United States even appears to have lost its luster as a destination for immigrants. It turns out priming the pump doesn't work when the engine is busted. 

Comments

[Tim]

Sales down: BAD
Sales up: BAD
Sales not changed: BAD

Is anything ever good?

[NAL]

Sex and pizza.

[Sparky]

When you're in the business of selling bad news then all news is bad news. Good news doesn't sell these days and everyone is looking for someone to blame.

[GHRTSY]

Remember when NYT/LAT/WaPo clucked at rising inequality, lack of affordable housing, rising current account deficit? Well 2008 reversed those trends, so everything's better now, right?

[Fist of Etiquette]

...that caused people to lay waste their fortunes with McMansion-sized yachts and yacht-sized SUVs.

Just wait until my SUV-sized pogo sticks hit the market.

[Fartriloquist]

Holiday shopping?

Bah! Humbug!

[Lith Ping]

Holiday shopping?

Bah! Humbug!

[NAL]

...that caused people to lay waste their fortunes with McMansion-sized yachts and yacht-sized SUVs.

You left out SUV-sized TV screens.

[NAL]

...and TV-screen-sized computer monitors.

[Dagny T.]

And computer-monitor-sized iPad screens!

[Auric Demonocles]

Do people have monitors that aren't TVs anymore?

[Sparky]

Me. Plus, I don't own an iPad or any other iDevice. Nor do I own any kind of smartphone. I tell all those capitalist pigs to suck it.

[GHRTSY]

Oooh, you've got a nice bridgehead in the elite-status proxy war

[Ron]

The argument here doesn't seem quite fair to me. Policies aimed at "priming the pump," have not been as aggressive as they might have been from the outset and have been mostly aimed at triage. Basically what we got was a kind of Keynesian-lite economic stimulus which, if you factor in the sharp increases in productivity, could arguably be said to have worked as advertised. Of course, I haven't seen any academic arguments addressing this question directly. If you know of any, I'd love to see them.

[GHRTSY]

could arguably be said to have worked as advertised

How can you argue that? Its an honest question, because I thought "it works" when fiscal profligacy changes everyone's minds from "things suck and will suck" to "things suck but are getting better". So you measure that using a proxy (people are spending more than before!!!), but how do you know the proxy isn't delivering other information (people are spending more because they need more shit, people anticipate inflation, the apocalypse, and/or the seizure of credit, people's spending always rises)

[Dagny T.]

Tim, did you just walk around your neighborhood taking depressing pictures? And just because "2 Broke Girls" sucks is no reason to drag that random dude into it. It's highly unlikely he is even remotely as lame as "2 Broke Girls."

[Gilbert Martin]

"believers in economic stimulus need to explain how you can have private spending higher than its pre-recession level and still claim the economy is suffering from an insufficient level of demand"

Well because - there are lots of Women's studies, Russian Literature, etc majors who have graduated and still don't have jobs that pay at a rate that they think thye're "owed" - or a job at all.

Therefore there has to be a "demand" problem.

It can't possibly be that some people made stupid choices in life and now have to deal with the consequences.

[GHRTSY]

Whenever people speak authoritatively about macro economics I get confused. What's the baseline, optimal savings rate, AD, etc? Is 2007 private spending meaningful at all? Is 40% savings rate better than 4%? Why and why?

Austrians, Keynsnians (neo and, er, retro), moneymarketist and anyone with macro diagnoses and prescriptions have as much common ground as Tebow lovers, haters, and don't-care-just-like-watching-spread offense-in-the-NFLers. That much disagreement makes it a religious tempest.

So, if that's a hopeless religious war, let's focus on a basic principle: what does liberty require? What is the libertarian macro-position? (Both optimal and possible.)

[Dagny T.]

I'm no econ expert, but it always struck me as really dumb to include gov't spending in aggregate demand. That alone makes macroeconomic analysis all but useless, to my way of thinking.

[GHRTSY]

Tyler Cowen makes that point in his Great Stagnation. GDP is rising but it includes govt spending which is mush less yummy than rising private GDP.

pretty much all the numbers macro relies on-- monetary base, inflation, GDP, employment rates, CPI, FedRate etc have dicey component and computational problems. This crowd shits all over that kind of modeling when it comes from the University of East Anglia and we should shit on it when it comes from George Mason U.

[EDG reppin' LBC]

What is the libertarian macro-position?

The libertarian macro-position is simply the aggregation of billions of micro-economic events. Trade between two free, willing parties that is beneficial to both parties is the foundation of the libertarian micro-economic position. The spontaneous order that arises from all of these transactions is the macro-economic position for libertarians.

[GHRTSY]

I get it, wot's what's the appropriate monetary policy? We've got a Fed, so its a bit of a cop-out demand an end to Seigniorage. Should our Fed loosen, tighten or remain the same (which is a slower way to tighten) the monetary base? What's the libertarian position?

Uncle Milt wanted steady growth, with deviations from the trend line "corrected". That would require a massive QE3.

[EDG reppin' LBC]

Uncle Milt wanted steady growth, with deviations from the trend line "corrected".

Libertarians/ Austrians would argue that free, non-distorted markets would result in economic growth that was "steady". They can't guarantee that there won't be bubbles in certain markets, but left alone, those markets will steady themselves. Deviations from a trend line, perhaps painful in the short run, are not something that needs to be "corrected" by policy. Again, the spontaneous order arising from free markets will provide the necessary corrections. QE3, would not help that process. Instead, QE3 would distort markets with the cash infusion, leading to more deviations from the trend line.

[GHRTSY]

So, the Fed tightened money supply in 2008 and distorted markets, but we just have to live with that and adjust to it? The Fed can't correct that mistake and bring us back to the steady rate trendline, its forever altered? I don't understand why.

[EDG reppin' LBC]

Unfortunately, the short term will be painful, so I would say yes, we simply must adjust to it. The Fed will never set "the right policy" in regards to money supply because they have an information problem. That is, they are out of the loop of the basic economic event: market transactions. Policies involving money supply, interest rates, etc. should not be determined from the top to be forced downward. Instead, mutually beneficial market transactions will signal to the Fed where capital is needed, how much is needed, and at what rates. It is information aggregated from the ground and transmitted upward to the Fed. Until the Fed stops trying to "drive" the economy, and learns to "ride" the economy, it will always overcorrect/undercorrect in it's policies, perpetuating more economic pain.

[R C Dean]

Spending is back up, but borrowing (all flavors, most especially including student loans) accounts for more of it than ever.

Hiring is not up; we're still down a total of, what, several million jobs? Employers have figured out how to hold steady at their current level (more or less) with fewer employees.

What they aren't doing is betting on the future by hiring more. Gee, why would that be?

What are the industrial production numbers? Could we stop pretending that the economy consists solely and entirely of consumption, and perhaps take a gander at production sometime?

[jtuf]

Capital is on strike.