Good Read: The Case for Credit (and Thus Maybe the Economy)

This time it's different.

How often have you heard that statement, especially around everything from the economy, to stocks to the New York Mets' World Series prospects.

Most folks in my line of work in financial journalism are busy proclaiming that the economy is doomed, credit is over and no one will buy their kids toys this Christmas.   There are certainly many, many negative data points to back up the doom & gloom discussion.    Credit is tough.     Layoffs are happening.   We are for all intents already in a recession.

But whither the spender.   The great wild card is going to be the spending desire of the American shopper.   I recently looked at a chart showing retail sales over the years, and with the exception of a few months in 1974-75 and 1979-81, retail sales on the whole have rarely gone down on an absolute basis.   The point: people like to spend, and do, even in tough economies.

Which is why I found this article in The Atlantic Monthly so interesting.   It's title is "The Case for Debt," and it details how for the last 80 years the American consumer's appetite for debt and spending has been sorely underestimated:

Studying “Middletown” in the 1920s, Robert S. Lynd and Helen Merrell Lynd deplored the “rise and spread of the dollar-down-and-so-much-per plan,” which extended credit for such extravagances as cars, electric washing machines, and “$200 over-stuffed living-room suites … to persons of whom frequently little is known as to their intention or ability to pay.” In 1943, Jesse Rainsford Sprague, a defender of installment buying, nonetheless worried that the “temptations of easy credit” were luring young people to take out bank loans, rather than save, for vacations. Of one stenographer, he noted, “Had the young lady spent less on lip rouge and blood-red fingernail paint, she might have been in a position to pay cash for her holiday.”

“As the result of the consumer credit explosion, the total private debt is certainly greater than the combined private debt of man throughout history. Never have so many owed so much,” declared Hillel Black in Buy Now, Pay Later, published in 1961—more than a decade before using bank credit cards like MasterCard and Visa became common.

The article also notes how interest costs have fallen over time -- and thus while debt levels have surged, the ability to handle that debt has become easier.

The article is not advocating taking on debt.  But it does help lay out a more bullish case for the economy and retailers than some of the most dire scenarios.    Never underestimate the shopper!  People have been doing so for generations, and gotten it wrong.