Business July/August 2009

Home Economics

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

The women’s magazines of the Depression years chronicle the efforts of wives whose husbands had suffered business setbacks to adjust to life with few or no servants. Informal, inexpensive entertainments like “Sunday Night Suppers” featuring welsh rarebit or chili con carne became popular. But while these meals could be made in advance and served without a maid’s help, many seemed to require a new electrical appliance or two to stand in for the missing servants: refrigerators to store the food (and obviate daily marketing); electric chafing dishes, waffle irons, and toasters to heat or cook it; plug-in percolators to serve coffee in the living room. The then-newfangled pop-up toaster was actually marketed in the ’30s as an entertaining appliance—the “Toastmaster Hostess Hospitality Set” showcased an elevated toaster surrounded by various toppings that guests could spread on their very own fresh, hot toast! In promotional materials, beaming hostesses carried their toaster trays like sacred offerings.

But that’s not the whole story. It turns out that even in a depression, people are more eager consumers of devices that help them consume leisure than they are of those that create it. If you look at a list of major household appliances, radio and television were by far the fastest to catch on. Their nearest competitors, the refrigerator and the electric iron, weren’t even close—even though many other “practical” appliances were introduced later, when households were richer, and more likely to have electricity.

In fact, radio boasts the second-shortest interval between introduction and adoption by 75 percent of U.S. households, topped only by the black-and-white television, even though radio completed the last third of that journey during a major financial crisis. At the time, radios were not cheap. In 1929, the average set cost $133, when per capita GDP was only $850. Yet Americans continued to buy them even as the Depression deepened. They did so partly because a radio could substitute for so many other goods: phonograph records, concerts, lectures, newspapers, even movies. The percentage of Americans who attended a weekly movie reached an all-time high near 70 percent in 1930, and then dropped like a stone. By 1934 it had fallen to 40 percent, where it hovered for the rest of the decade. Americans, it seems, regard paying someone else to entertain them as a frivolous expense that can be cut—but buying equipment that does the same thing as an imperative.

Historical parallels are never perfect. But this one is pretty strong. Netflix, the online movie-rental site, had a great year in 2008, increasing its subscriber base by 26 percent; it raised its profits by 70 percent in the beginning of 2009. Redbox, which provides movie rentals from vending machines in supermarkets and other retailers, is also booming, and recently announced plans to expand from about 13,000 locations to 20,000 by the end of the year. Even in a recession, $1 a movie, or $8.99 a month, seems like an affordable luxury.

Preliminary data suggest that Americans are also making substantial capital investments in home entertainment. Although DVD sales are down, sales of pricey Blu-Ray discs during the first three months of 2009 were double the level of a year earlier. Kindles and iPod nanos have also seen strong sales. Even flat-panel televisions, the iconic unnecessary consumer good of the past decade, have proved surprisingly resilient. Corning, which makes the glass for many of the televisions, reported February sales up at least 30 percent over last year in most countries, and expects a further 9 percent increase overall in 2009. Lee Scott, the former CEO of Wal-Mart, reported strong flat-panel sales in the beginning of January, after a disappointing Christmas season.

Of course, sales were concentrated among the value models with thin profit margins. Meanwhile this spring, Pioneer announced that it was exiting the plasma-TV market and abandoning its Kuro line, widely regarded as both the best and the priciest consumer flat-panels available. The company was unable to persuade budget-constrained consumers to pay for quality.

This looks a lot like what happened to radios, which increased their market share in the early ’30s largely by getting a lot cheaper, quickly. In 1930, manufacturers cleared out inventory by slashing prices on existing models by more than 30 percent, while making sets with fewer components and no pricey wood cabinets. By 1933, $10 “peewee” models brought the average spending on a new radio down to just $35.

But many modern Americans are getting an even better deal out of the companies that help us fritter away our spare hours: we’re enjoying their products for nothing. From Facebook to blogs to YouTube, we’re getting an unprecedented array of free entertainment. Many of these purveyors have hazy plans to make money from ads or subscriptions, but so far, they’re just short of corporate-sponsored charity.

Does this herald a permanent return to a homier culture? It’s not clear how long we can continue to consume those useful Web services without paying—information may want to be free, but electric companies and computer manufacturers want to get paid. Since the beginning of 2008, multiple media start-ups have gone belly-up, in the worst ad market in living memory.

The larger trend, however, seems more robust. The generation that lived through the Great Depression was permanently altered by the experience, which is why everyone’s grandparents played pinochle and collected rubber bands in enormous balls. The Great Depression left us with a legacy of devices that transformed the home, saving our labor and helping us waste the extra time they gave us. But it also made us a nation of compulsive savers. In 1929, the personal savings rate was about 4.5 percent of disposable income. After World War II, it was more like 7 to 10 percent—until the oldest survivors of the Great Depression began leaving the workforce in the early to mid 1980s. That’s when the savings rate began its long decline, bottoming out in 2005 at just 0.4 percent. Unless we come out of this crisis quickly, those of us old enough to worry about paying the bills will probably be forever altered.

But that doesn’t mean that we’ll never again shop for granite countertops (unless they go the way of Formica and the Harvest Gold refrigerator). That generation of obsessive savers was also the generation that blazed the trail into the suburbs, and mass homeownership. No matter how hard the financial crisis hits, we won’t entirely cut out the spending we do to ensure that there’s no place like home.

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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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