The dawning age of thrift

My partner and I are regular restaurant goers. We’ll often quite decadently travel a not insignificant distance to go to a great restaurant, like for instance Eschalot in Berrima (a one and a half hour drive south of Sydney). Recently we’ve started to pull our horns in a bit by spending less per head. I’ve also noticed a distinct reduction in the number of empty tables at restaurants. I take this as a clear sign that the global recession has arrived in Australia.

People who overconsumed during the past decade are rejecting extravagant lifestyles. Following 9/11 when, in particular in the US, it became patriotic to shop and spend, people are now spending less and more wisely. The penny pinching is showing up in the numbers with personal consumption falling, exacerbated by huge consumer debt ($2.6 trillion in the US).

Which brings us to what John Maynard Keynes called the paradox of thrift. What’s good for the individual, argued Keynes, can ignite or deepen a recession. But that won’t deter the newly thrifty. It isn’t hard to hear the millions of those in debt exclaim, “I can’t help the economy, I’ve got to help myself”. Thrift has gone in and out of style over the years often sparked by recessions. Indeed the Great Depression marked many and their siblings for life. In the 1930s, it was typical for son’s to see their fathers out of work for years, perpetually hungry, scraping together a living. Those sons today, many who are now in their 80s and wealthy, shop with coupons, drive a Ford and take the subway rather than throwing away money on a taxi. Their baby boomer children grew up without psychological scars from the Depression. And the boomers’ children have come of age in an era of abundance, easy credit and a taste for luxury. “We want to build a culture that’s more hospitable to thrift, so it’s not seen as odd but fostered and nudged along,” says Barbara Whitehead, co-author of For a New Thrift: Confronting the debt culture, a new report from The Institute for American Values, a think tank.

As joblessness creeps up, many more will receive their own crash course in thriftiness. Some will spend more up front to reap savings over the next few years, like installing expensive but energy sipping light bulbs or solar panels. Some will switch from shaving cream to shaving soap – a relatively small saving per year but a sizable psychological benefit. People are learning the difference between necessities and discretionary spending. Maslow’s hierarchy of needs is as applicable now as it ever was.

People are eating in more, buying more second hand clothes and turning the lights off when they leave the room. In late 2008, Booz & Co conducted a survey of nearly 100 households and found that 43% of respondents said they are eating at home more and 25% said they cutting spending on hobbies and sports activities. In both cases, most said they’d continue doing so even when the economy improves. Much the way the inexorable rise in petrol price have prompted many to forsake SUVs for smaller cars, the likely fall in home values and the size of consumer debt, will make consumers think twice about hitting the mall and lead, I fear to say, to a more lengthy contraction than some commentators would have us believe.