Here’s a Grinchian question for the holidays: How much do Americans spend on stuff they don’t really need? A very rough analysis suggests they’re blowing more money on nonessential items than they have in more than 17 years.
Back in the 1950s, the economist John Kenneth Galbraith made a bleak argument about modern capitalism: Advertising can create artificial wants — say, for the latest gadget or skin cream — that spur ever-greater consumption without actually making people better off. As a result, economies can grow without improving the lot of humanity.
Whether or not he’s right — it remains a matter of debate — the idea raises an interesting empirical question: How much of what we consume is related to wants rather than needs?
This isn’t easy to answer using even the most detailed data on consumer spending, because many categories could go either way. A car, for example, could be pure transportation or a Ferrari. That said, a number of categories — such as gambling, hairdressers and recreational vehicles — are pretty clearly nonessential. Following them consistently over time can give at least a sense of trend.
So how are we doing? In the third quarter of this year, nonessential items (of my own subjective selection) accounted for almost 18.5 percent of total U.S. consumer spending. That’s the highest share since June 2000. Here’s a chart:
Granted, this is no final word. For one, the data are in nominal dollars, so if prices of nonessential goods have been rising relatively fast, their share of spending could look bigger — even though real consumption hasn’t changed. That might help explain why spending on stuff we don’t need looks so high during the inflationary 1970s. On the other hand, that was also the decade of wide hair, puka shells and pet rocks.
In terms of budget share, though, Americans do appear to be buying more stuff they could do without — albeit still not quite as much as in 1959, just after Galbraith published his influential book “The Affluent Society.” Are we better off? With the Christmas spending spree upon us, it’s something worth considering.