Features

Consumer mega-spending of the ‘90s is on the backlash 

NEW YORK — Seldom has there been such a seismic change in American spending habits. 

In the 1990s, consumers borrowed on every asset they owned so they could spend on whatever was on sale at Home Depot or WalMart. It may be no exaggeration to say they sought ways to spend. Shopping was a sport. 

In pursuing their goals, consumers ignored warnings that zero savings couldn’t be long maintained, that they endangered their retirements, that they were inviting inflation. Life was to be lived, damn the cost. 

Now, with some spectacularly low prices and interest rates dangled before their eyes, an economically unhealthy portion of the public is nodding rather than springing to action, and deflation is a possibility. 

Deflation? After all these years of worrying about prices running amok because of strong demand, sellers are now contending with a situation in which prices conceivably could spiral down because of low demand. 

The possibility of this happening might not be great, but the word has at least been showing up in the commentaries regularly offered by securities analysts, corporate economists and some academicians. 

Several factors helped change the consumer mind, but they all added up to doubts rather than certainty about the future. 

The wealth effect, the sense of being rich, sprang an air leak when stocks fell. The technology bust seemed to spring out of the box. Social Security worries reinforced fears. Job losses undermined dreams. Then terrorists confirmed growing doubts about an inevitably good future. 

The effort to restore at least some of that old confidence is now a battleground in itself, an economic war involving America’s most powerful fiscal and monetary institutions. 

To entice consumers and businesses into greater activity, the Federal Reserve, having lowered interest rates 10 times this year, is prepared to go lower. And Washington is preparing massive tax and spending programs. 

For its part, elements in the private sector are doing things almost unimagined a decade ago, such as halving prices, offering interest-free borrowing and offering a variety of money-back guarantees. 

At least superficially, some areas of the economy are doing fairly well as a result. Car sales have surprised, and housing sales have defied dire predictions. But hotels, travel and entertainment are hurting. 

The intensity of the selling effort has seldom been greater or more apparent, to which any Sunday TV football fan can testify after enduring more car ads in three hours than pass and runnings plays on the field. 

Nevertheless, the economy probably in recession now, shrinking in size, which leaves success to be measured in terms of how shallow and short the recession ends up being, and how healthy is the recovery. 

Even in recovery, which the great majority of economic minds believe is coming, there’s danger. Suppose the White House and Congress and the Fed and the private sector overshoot the mark, rousing up too much demand? 

What then? Then inflation would be the worry.