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Culture of consumption

(Page 3 of 3)

Professor Cohen found a post-war bridal-magazine ad, for example, with text that reads like a primer for new consumers. "It tells the reader that when you buy things, you not only get the material goods you want, but you also help the nation," says Cohen.

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As tools for investment became more sophisticated, Americans devoted more of their income to buying goods and services. Vital assets like common stock, mutual funds, and real estate have rendered traditional means of saving unfashionable.

Consumers have had little reason to let money sit in the bank, when buying a house enabled many to accumulate thousands of dollars in additional wealth.

"We had the peculiar situation when people would go further and further into debt [to buy a home], and at the same time their wealth was increasing," says Michael Lehmann, an economic historian at the University of San Francisco.

Many families have drawn on home equity to finance a slew of spending over the past decade. Since 2001, refinancing has put about $300 billion into the economy, almost all of which consumers have spent, according to the Mortgage Bankers Association.

But the strength of the economy's cash-growing tools appears to be waning. The stock market has flagged, and home values are already falling in some overheated markets, thereby cutting off most consumers' primary source of extra cash.

Many experts thought the housing market would have begun to drop by now, prompting Americans to save more, according to Mr. Baker.

But without that kind of drain on wealth, Americans seem to have little instinct to voluntarily cap their spending. According to a recent Monitor/TIPP poll, 27 percent of Americans plan to spend the money they get from the new tax cut, compared to 18 percent who will save.

Part of the reason might be hesitancy on the part of political leaders to encourage fiscal prudence. Washington has shied away from uttering anything negative about consumption ever since many Americans bristled at Jimmy Carter's 1979 address to the nation, in which he said: "Too many of us now tend to worship selfindulgence and consumption."

But what if Americans cut spending?

Economists disagree on what effect a reduction of spending would have on the economy. Many argue that it would be devastating.

"If consumers were to reduce spending for a sustained period of time, very little about that would be OK," says Milton Ezrati, senior economist with the investment firm Lord, Abbett & Co. in Jersey City, N.J. "Business would cut back spending, it would feed on itself, and that's where recessions come from."

Others suggest that the overall economy would benefit from a sizable uptick in consumer savings, because businesses would be the primary beneficiaries.

"With saving and investment, there are many more mechanisms for expanding growth than short-term shopping sprees," says Moore.

Mark Brown says he does not want to see people stop spending money. Indeed, after the terrorist attacks in 2001, Brown made a special trip to New York's Chinatown just to help support the economy.

But every year he sees clients go into serious debt because of a failure to save. He says he needs to work harder at convincing them to plan for the future.

"My job is to help people prepare for the unexpected," he says, "and we all need to do a better job of that."