The Christmas Paradox

The Christmas season is upon us and shoppers in the world’s largest economy are caught in a shopping frenzy. Starting from the 1^st of November retailers start bombing consumers with lucrative and mouth-watering discounts which keep on growing as the Christmas shopping season reaches its end . 

BY RATTANDEEP SINGH | 4 Mins Read

The American National Retail Federation expects Christmas sales to surpass 730 billion dollars growing by 3.8 to 4.2 percent yoy , significantly outpacing the broader US economy which is expected to grow at a brisk pace of 2-2.5 percent.

Given that consumer spending makes up roughly 70 percent of the US economy, isn’t it good news or is it really that big a positive?

The biggest reason for this over extended consumerism is the fact that Americans think that it is their patriotic duty to spend like crazy in the holiday season , which it turns out is a propaganda by the capitalist machine to keep its huge retail sectors up and running. Over the past few years people have themselves complained about the commercialisation of Christmas, which means that consumer spending during the holiday season is more driven by compulsive social models propagated by the capitalist machine

Even if we overlook this ethical argument of consumerism and the capitalist propaganda , there’s are a lot of reasons why this excessive consumer sending is actually bad for the conomy and rather consumers should just cut back on spending and just save some money.

The first argument is the heavy reliance on imported goods. Almost 80% of the products to be sold in the holiday season is imported which means that all most all the demand is cornered by foreign entities and even a high school graduate can tell you that imports don’t add up in a country’s GDP, this means that a big chunk of this festive spending goes waste when we consider the argument that consumer spending adds to our GDP, so whosoever patriotic it may feel to spend in the festive season almost all of that is being eaten up by some foreign entity in some foreign country.

The second argument regards the source from where this huge spending comes up and yes that from credit card debt. Even though all this spending is going up foreign hands it is on the other hand leading to a bigger and bigger credit bubble , which is becoming increasingly unmanageable for the average consumer. Never in the history of this world has the American consumer been more indebted than today and we still keep the spending mindlessly

Both consumer and credit card debt have surpassed the precious records set during the Great recession of 2008. The consumer debt today stands at over 14 trillion dollars higher by about 1.5 trillion than the Great recession records , while the credit card debt stands at 1.08 trillion dollars marginally higher than the pre recession high of 1.02 trillion dollars.

Add to this the sovereign debt of 22 trillion dollars and the corporate debt of 15.5 trillion and we see that the American economy is not that healthy as it seems at the first glance and the only pillar standing is the consumer.

What American economy actually needs is not more and more consumer spending it just needs consumers to just cut back on mindless spending a bit and save some money.

This has two benefits , first it boosts the financial strength of the average household , which is already reeling under increasing inequalities and rising cost of  living along with such increased levels of debt never been seen before. So saving some money will actually relieve the average household and strengthen its position.

The second benefit that accrues from increased saving is that it allows for more investments. Given that the US has a negative savings rate , it doesn’t leaves much capital to be used for investment purposes. So saving some money will have a positive effect in the real economy in the long term as it will boost investments towards infrastructure which the US economy needs badly in of it wants to revive it’s manufacturing and be self dependent in some areas of consumer goods if not all.

Even though cutting spending and saving some money may seem counter intuitive but it will actually be helpful in the long run. And given that we are already in the last stage of the economic cycle of will not be prudent to just spend mindlessly as spending more further contributes to the credit bubble and may make the US worse off in the long run going deeper into the economic cycle.