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THE OVERSPENT AMERICAN. \o7 By Juliet B. Schor (Basic Books: 254 pp., $25)\f7 ; CREATED UNEQUAL: The Hidden Forces Behind the Crisis in American Pay.\o7 By James K. Galbraith (The Free Press: 350 pp., $26)\f7

September 06, 1998|JOANNE B. CIULLA | Joanne B. Ciulla holds the Coston Family Chair in Leadership and Ethics at the Jepson School of Leadership Studies, University of Richmond. She recently published "Ethics: The Heart of Leadership" (Praeger, 1998)

A spacious hive well stock't with bees

That liv'd in luxury and ease

Millions endeavoring to supply

Each other's lust and vanity. . . .

Every part was full of vice

Yet the whole mass a paradise

Envy itself and vanity,

Were ministers of industry


John Mandeville's wry poem "Fable of the Bees" illustrates the moral paradox of our consumer society: We depend on what is worst in human nature--envy, lust, greed and gluttony--to bring about the greatest good. Mandeville's poem was considered so immoral in 1723 that the Grand Jury of Middlesex, England, declared it a "public nuisance."

Two important new books by economists Juliet B. Schor and James K. Galbraith lock horns with Mandeville's paradox. Schor argues that "vice-driven" spending isn't good for us. Galbraith argues that without sound government policies, a "vice-driven" economy leads to wage inequality, which isn't good for our society. Yet both authors realize that spending creates jobs.

In "The Overspent American," Schor argues that the "bees" are in trouble because they spend more than they make. Back in the 1950s, Americans tried to "keep up with the Joneses." Neighbors set the standards for what we wanted, whether it was the Chevrolet in the driveway or the kid's Hula-Hoop. Since next-door neighbors were likely to have an income similar to ours, keeping up with them was within our means.

Under what Schor calls "the new consumerism," though, we don't compare ourselves to our neighbors (some people don't even know their neighbors) anymore, but to our co-worker in the corner office, celebrities and the "Friends" we see on television. In fact, Schor discovered a correlation between the time spent watching television and spending; she estimates that every extra hour per week spent watching television means a $208 increase in annual spending.

This new consumerism emerged in the 1970s, when marketing experts noticed that people no longer spent to belong to a particular group, but rather spent to express their individuality. As a result of this, marketers and consumers went upscale: The Pottery Barn started to look more like Williams-Sonoma, Pier 1 began to resemble Bloomingdale's, and Kmart initiated its incongruous partnership with Martha Stewart.

Consumers not only went upscale, but they wanted more. The size of houses has doubled in the last 50 years, and expenditures on vacations and recreation have doubled since 1980. And the rich have grown richer. Between 1979 and 1989, the wealthiest 1% of households increased their income from an average of $280,000 a year to $525,000. In the 1980s, the "decade of greed," the wealthy spent conspicuously on Mont Blanc pens, Rolexes and Lexuses, and the middle class mimicked them.

The odd part, says Schor, was that in the midst of all this spending, only one in four Americans believed their children would enjoy a higher standard of living than their own. Nonetheless, by the 1990s, households making $50,000 to $100,000 were taking on consumer credit debt at record levels. Sixty-three percent of this group owe something on their credit card. Meanwhile the savings rate has plummeted, and most households today operate with practically no financial cushion. Many are caught in a vicious work-and-spend cycle that Schor eloquently described in 1991 in "The Overworked American." Work hours have increased by 10% over the past 25 years.

Schor says most Americans spend their money on "visibles" such as clothes, cars and home furnishings, while they scrimp on "invisibles," such as insurance, retirement savings and college funds. Some of the reasons people spend money on visibles are silly. For example, in her study of buying habits in the cosmetics industry, Schor found that women are more likely to buy expensive lipsticks than expensive facial cleansers. This is not because the expensive lipsticks are better quality than cheaper ones, but because women often apply lipstick in public and don't want to be seen using a cheap brand.

After reading this litany of consumer spending and debt, one can only wonder, "Have we all gone mad?" Schor clearly wants to make us think about how spending influences our lives and to consider her solution to overspending, "downshifting." A Merck Family Fund poll found 85% of those who downshifted reported being happier spending less.

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