Home Economics

“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.

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.