Business July/August 2009

Home Economics

Even in a depression, it seems, Americans won’t stop feathering their nests.

Image: William Gottlieb/Corbis

“Home,” wrote Robert Frost, “is the place where, when you have to go there, they have to take you in.” Small wonder that when we’re faced with economic hardship, that’s where we retreat. As Rogan Kersh, a professor of public policy at New York University, recently told ABC News, recessions bring out our nesting instincts. According to Kersh, “This holds true across income classes and other demographic groups: from college students to retirees, we’re turning back to the home front.”

We don’t really have much choice. All recessions involve cutting back, but overleveraged Americans seem to have taken a hacksaw to their expenditures—the personal savings rate more than tripled in 2008 and is still rising. Even most Americans with big mortgages, little home equity, and too much on their credit cards are struggling to get rid of debt the old-fashioned way: by paying it off. We can hardly have new fun while we’re still working off the excesses of yesteryear.

Or rather, we can’t buy new fun. The emergence of leisure activity as what economists call “market production”—something that is bought and sold—is a relatively recent phenomenon. Until well into the 20th century, most leisure was “home production,” created and consumed without much cash changing hands. Our ancestors made parties out of things they needed to do anyway—quilting, raising a barn, eating—or they entertained one another, singing, reciting, dancing. Either way, any trading was strictly on a barter basis.

Perhaps that’s why we still view buying entertainment as frivolous. Personal-finance gurus such as Dave Ramsey and Suze Orman rarely interrogate callers about how many parties they give, how often they fly home, or whether their needlepoint is taking up too much disposable income. (Don’t laugh—I can testify that needlepointing, like many other crafts, is surprisingly expensive.) No, they want to know how many meals you eat out, how much time you spend in bars, where you go on vacation. In a recent Pew study, a majority of Americans identified recreation and dining out as activities to cut back on during hard times.

Even the traditionally recession-proof “sin” industries—gambling, drinking, smoking—have been punished. In February, Atlantic City had its worst revenue decline in 30 years. Meanwhile, just as they said they would, Americans have cut deep into their dining-out budgets. Once considered a special treat, or emergency relief for an overworked housewife, in 2007 “food prepared outside the home” accounted for nearly half of all food dollars spent in America. This trend seems, at least temporarily, to be reversing itself. A few downscale outlets like McDonalds are actually thriving, but most sit-down establishments are not. Empty bar stools are easier to find, too.

Yet overstretched Americans aren’t necessarily, as Dave Ramsey famously puts it, living on “beans and rice, rice and beans.” At a retailer meeting in January, Costco CEO Jim Sinegal reported that his firm was seeing strong consumer sales in prime meats and other luxuries, as customers apparently tried to replicate their forgone restaurant meals at home. And a recent report from an industry analyst projected that alcohol sales for home consumption will rise almost 5 percent in 2009—especially impressive when you consider that consumer prices are currently falling.

People aren’t just pulling basic consumption back into the home. In fact, they’re willing to spend new money on “unnecessary” goods—cast-iron cookware or flat-screen TVs—to make their homes as entertaining as the public spaces they’ve left behind.

It’s too early to tell what sort of long-term impact these shifts in consumption patterns will have—if any at all. But as we all stare backward toward the Great Depression, looking for clues to our future, it’s worth noting that evidence from our nation’s lost decade suggests that today’s shifts in behavior may well be profound. The Great Depression not only changed savings habits, it also marked a change in how we spent our money, particularly at home.

We aren’t the only generation to have gone on a credit-fueled buying binge—or to regret the hangover that followed. As in the current crisis, the expansion in credit during the 1920s was not limited to mortgages, or even to margin loans. Americans had discovered they could buy the splendid new array of consumer goods, from radios to automobiles, on credit—and manufacturers were eager to help them, since a bigger market made it easier for them to achieve the economies of scale recently made possible by the assembly line.

So what happened to all those new geegaws when the party ended? Perhaps surprisingly, the working classes continued to purchase their radios and electric iceboxes. In 1926, 20 percent of American households had radios. That figure reached 50 percent in 1929—and 75 percent two years later, in the depths of the Depression. Refrigerators were in 20 percent of households in 1932, and 50 percent in 1938. Other appliances, from toasters to washing machines, pushed deeper into the market even as consumers were supposed to “purge the rottenness out of the system,” as President Hoover’s treasury secretary, Andrew Mellon, said.

Many of these goods had something in common: they made home production more productive. To be sure, in 1929 few households ate at restaurants every night. But many households purchased another sort of market production: domestic servants. Servants were never as common in America as they were in Europe (where Agatha Christie, in her later years, mused that she had never imagined being so rich that she’d have a motor car, nor so poor that she wouldn’t have servants). And their numbers had already begun declining in the 1920s, thanks to immigration rules that cut into the supply of willing workers. Nonetheless, domestic help was more common among the middle class then than it is today. Even my great-grandmother, living on a small farm in western New York, had “hired girls” to help with the heavy work.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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