Debra Goldman’s Consumer Republic

With so much anxiety surrounding this post-Sept. 11 Christmas, the annual survey conducted by the Consumer Federation of America and the Credit Union National Association makes especially interesting reading.

Like so many of the numbers being reported these days, the results were not so good, but nonetheless better than expected. Twenty-eight percent of those surveyed said they plan to spend less this year than last. That’s a little more than one in four. On the other hand, it’s only four percentage points higher than in 2000. Meanwhile, 57 percent intend to spend the same amount, not bad at all compared to 56 percent the year before.

Let’s hope this doesn’t get around. Consumers have been making out like bandits on pessimism about their willingness to spend. They’ve already received a big Christmas present in the form of tumbling gasoline prices. And our politicians and merchants, post-Keynesians all, have rushed in with more incentives to keep Americans shopping.

First there was Christmas in July: the tax rebate checks that arrived this summer. The Federal Reserve Board has cut interest rates 10 times, bringing them to levels not seen since baby boomers were babies. And now, among the many consumer-goosing stimuli being debated in Congress, there is a proposal for a National Sales Tax Holiday: 10 days during the holiday season when everything across the land would be sold tax-free.

The private-sector patriots have done their bit, too-most famously General Motors, which jumped in with interest-free financing, dragging its competitors along for the ride. The resulting showroom stampede did wonders. More cars were sold in October than in any month in history, and retail sales surged a 1999-like 7.1 percent.

Yet did it create real economic benefits? As The New York Times pointed out, it is likely that some car buyers could have gotten their cars more cheaply if they’d paid interest but negotiated a better price or a more generous trade-in allowance. As for GM and company, the cost of such financing cuts deeply into the profitability of each car sold. Plus, there is the unanswered question of how much October borrowed from future sales. Did this gambit prevent a deeper recession or merely postpone a recovery? Stay tuned.

This frenzy to goad consumers into spending right now suggests the dot-com-bubble fantasy that economic cycles can be abolished still lingers. In light of events, consumers have every reason to be a little hesitant about spending-and despite the hysteria, they seem no more than a little hesitant. Indeed, the headline should be not how frightened consumers are these days but how remarkably resilient.

Classic economics teaches that the resources that consumers husband in downturns are the fuel for future upturns; in a lackluster holiday season lie the seeds of blockbuster years to come. Given the relative calm of consumers today, it makes more sense to offer help to those who suffer grievously in bad economic times than to attempt in vain to eliminate the bad times altogether-and create worse problems in the process.

Interest-free financing, sales tax holidays and other traffic-building steroids do bring people into the stores. But they also breed an expectation of better deals to come, and encourage the already cautious consumer to sit tight until then. Who among the 72 percent who intend this Christmas to spend the same as or more than last year is not waiting for a sale? Only a jerk would pay full price for anything right now. Extend this mentality beyond Christmas and you’re facing the prospect of deflation. And with deflation, it is smarter to save a tax refund than to spend it.

Most economists agree-Japan’s malaise notwithstanding-that deflation will not happen here, and we can hope they are right. On the other hand, in the last few months we have learned that the really scary events are the ones we don’t expect. Except for elderly survivors of the Depression, Americans haven’t experienced prolonged deflation, so it’s only natural that we fear it less.

Virtually all economists insist on the fundamental soundness of the U.S. economy. If they’re right, that soundness is due in large part to the fact that Americans fundamentally like to shop. Since there are no signs this psychology has changed-see the CFA/CUNA survey above-it might be wise to let consumers find their own comfort level, safe in the knowledge that the minute they feel secure, they’ll start spending again.

There are worse things that can happen to our economy than one lousy Christmas.