HEY, BUDDY, CAN YOU SPARE 5 BUCKS FOR A CUP OF COFFEE?

2/9/09

Justin Lahart of the Wall Street Journal argued in today’s (i.e., 2/9/09’s) paper that “Pent-Up Demand Could Quickly Pull Economy Out of Its Hole,” as the headline on page A2 read. In the article, Mr. Lahart defines “pent-up demand” as the result of a condition in which “consumers and businesses are foregoing (during recessions) spending that they might otherwise see as necessary purchases” He cites history, primarily the 1980 recession, in his argument that such pent-up demand might lead to a rapid snapback of the economy if the stimulus package bears some fruit, “consumers and companies start thinking the worst is behind them,” and start spending. To his credit, Mr. Lahart also cites 1981, during which the economy, after a false start, fell into the “longest downturn since the Great Depression,” to inject some caution into his otherwise optimistic proposition.

There is something to the pent-up demand argument, but, at the risk of uttering the most regretted words in economic and financial prognostication, this time is probably different.

First, pent-up demand implies need; people have pent-up demand for things they needed but had to forgo during lean times. I will be the first to admit (Admit? I beat this concept over the head over and over and over!) that my generation’s definition of “needs” has expanded to the point of gross and ridiculous deception. We “need” TVs as large as our parents’ garage doors. We “need” cars that talk to us in order to tell us how to get to nearest mall in order to more quickly and efficiently pee away our money. We “need” to eat at restaurants in which the price of the meal displays a significantly negative correlation to the amount of food served (“Oh, but the presentation is so BEAUTIFUL!” What the heck do I care? I’m going to eat the stuff, not stare at it, and I’d like a little more food than is necessary to fill my tooth, thank you.) and in which the wait staff displays an attitude reminiscent of that of the staffs at the various gulags that used to dot the Siberian countryside. (Ever try to eat at one of those places and not order alcohol? Talk about getting treated like something the waiter would like to scrape off his shoe!) We “need” to, when we are “sacrificing,” eat lunch at fast food places at which lunch costs what a nice dinner did a few years ago. We “need” to buy our morning (and our mid-morning, post-lunch, mid-afternoon, and “showtime” post 5 o’clock cups of joe) coffee at places at which a cup of coffee costs what three or four pots of home brewed rocket fuel would cost. You get the point.

None of these “needs” are needs in the strict sense of the term. Very few people, or at least very few people who ever had any real purchasing power, really need anything they don’t already have. In fact, even if we expand the definition of “need” to conform to the “needs” of my materially lascivious generation, people have all the weak ego fortifying gimcracks they need. Once one has four wide screen, plasma, HD (or whatever they call these troublesome geegaws) televisions and a car with heated brake and gas pedals, does one “need” another?

Okay, maybe our generation “needs” more garbage for which they then must pay outrageous monthly fees to rent storage facilities. We simply cannot live without our silver plated toothpicks and $15 dollar razor blades that give, at best, a marginally closer shave than a Bic disposable. But that leads to my second point: “Demand,” pent-up or otherwise, implies not only wanting something but being able to pay for it. My generation is broke. It was living on the edge when times are good. Now that times are bad, it has fallen off the edge. People not only have NO MONEY but they also have LARGE PILES OF BILLS that THEY CAN’T PAY for things that THEY NEVER NEEDED in the first place. As Uncle Roman so articulately put it in the classic “The Great Outdoors,” “we’re broke, busted, ruined.” (He also said he was “a fake, a phony, a fraud” presciently speaking for (almost) an entire generation, but that is grist for another post.) No sensible financial institution will lend to the typical member of my generation. With no money and no access to credit, this profligate cohort can want all the Caribbean (or less plebeian spots, I suppose) “getaways” from the dreary confines of their McMansions their deprived hearts can imagine, but that desire adds nothing to genuine demand.

Perhaps (probably, really), no one will learn anything from our current economic travails; my generation’s “needs” are indeed unlimited and these financial dunces will go out and blow money on more spiritually and economically toxic refuse as soon as doing so becomes even remotely possible. And perhaps (probably, really) the government’s ardent efforts to restore our financial system to the good old days when money was lent with nary a care as to the borrowers’ ability to repay will bear abundant fruit. Perhaps, as a result of the combination of personal irresponsibility and generous government enablement thereof, pent-up demand will bring us out of the economic doldrums before thrusting us even more deeply into fiery pits of economic dystopia. That seems to be the goal of the Obama (and Bush—There is not much difference (Surprise!) between the objectives, or even the tactics, of these two administrations’ financial and economic policies.) economic and financial approach.

But maybe not. Perhaps something good will come out of this economic time of trial: People will learn what they really need and how ridiculously they have behaved for the last, oh, twenty years or so. Financial institutions will learn that the object of making loans is not to make a fee but, rather, to create a profitable and economically salubrious asset. Should this (admittedly way too optimistic (What in the world is happening to me?)) dream come true, this period of economic difficulty will have all been worth it.

Don’t get your hopes up, though.