nervousness that manifests itself in a
surprising reluctance to demand wage increases.
So why is spending so high? Much of the surge is
driven by those families that do own a lot of
stock and have been willing to treat recent
capital gains not only as durable but as likely
to continue. And at least some of the rest is
the result of what Robert Frank calls luxury
fever: families with annual incomes of $30,000
try to emulate the consumption of those with
$60,000, who try to emulate those with $120,000,
and so on. Ultimately we are all trying to keep
up with the Gateses, and some of us really can't
afford it.
And this leads to a deeper concern: there is
good reason to think that even those consumers
who can afford all this spending will eventually
find that they can't get no satisfaction. It is
hard to talk about this without sounding either
moralistic or supercilious, but it turns out
that the folk wisdom is backed by hard
statistical evidence: you really can't buy
happiness, certainly not for society as a whole.

Partly this is because of congestion effects
like the ones my family is experiencing: when
few people have cars, the one-car family is
king, but when everyone has two, a lot of time
is spent in traffic jams.
A more important point, probably, is that human
beings are hard-wired to judge themselves not by
their absolute standard of living, but in
comparison to others. It may be true that in
material terms today's borderline poor live as
well as the upper-middle CLass did a few decades
back, but that does not stop them from feeling
poor. And consumer spending ultimately
disappoints because of habituation: once you
have become accustomed to a given standard of
living, the thrill is gone.
But there is one very powerful argument that can
be made on behalf of recent American
consumerism: not that it is good for consumers,
but that it has been good for producers. You

see, spending may not produce happiness, but it
does create jobs, and unemployment is very
effective at creating misery.
Better to have manic consumers, American style,
than the depressive consumers of Japan -- a
country where the only consumer durables that
have sold well the last few years are home
safes, the better to hoard cash in.
This attempt to keep up with people richer than
ourselves, however ineffectual it may have been
on its own terms, has allowed the United States
economy to sail through a global financial storm
unscathed, and arguably made the difference
between a global wobble and a repeat of the
1930's.
There is a strong element of rat race in
America's consumer-led boom, but those rats
racing in their cages are what have kept the
wheels of commerce turning. And while it will be
a shame if Americans continue to compete over
who can own the most toys, the worst thing of
all will be if the competition comes to a sudden
stop.
Now there are faint hints in popular culture --
though certainly not yet in the spending numbers
-- that Americans are starting to become
disillusioned with high consumption, that in
years to come the American consumer will become
wiser and more prudent. Let's hope it really
happens -- but not too fast.
Paul Krugman is an economics professor at M.I.T.
and the author, most recently, of "The Return of
Depression Economics."

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