Economies the world over are struggling with some of the worst bouts of inflation and economic slowdown seen in decades. The COVID-19 pandemic with its lockdowns and the conflict between Ukraine and Russia not long after have been significant shocks to global economic activity, causing severe disruptions in global value chains and sending commodity prices skyrocketing. Governments have been shaken to their core in dealing with inflationary and debt crises. The United States, the largest economy in the world, is not immune to these shocks either. Negative growth in the first half of 2022 caused the Fed to raise interest rates in an effort to forestall a recession, like done in many parts of the world dealing with inflation.
Yet the US has managed to avoid recession so far, in part thanks to rabid consumer spending on entertainment in the last few months. Estimates put earnings from American artist Taylor Swift’s Eras Tour at almost $5 billion by its end, and the release of the Hollywood movies Barbie and Oppenheimer have grossed over $2 billion worldwide in just over a month since their release, with almost three-quarters of a billion of the latter amount coming from just domestic US sales.
As echoed by numerous corporations in their reports, consumer confidence and spending is at an unprecedented high, despite inflation and economic uncertainty in other sectors. But what are the reasons for this high level of spending in unfavourable conditions? Some point to the effect of the COVID-19 pandemic, with its extended lockdowns and severe restrictions on mobility and recreational economic activity. A year or two of muted entertainment opportunities means that consumers now are more willing to fork out money to spend on movies, concerts and other public entertainment they were unable to go to during the lockdowns.
However, what most reports detailing this phenomenon are missing out is the implicit frailty of the entire situation. Though to say that buying tickets to concerts and cinemas has saved the US economy from collapse would be simplistic and fundamentally incorrect, economies globally – including not just the US but also countries such as Pakistan – have become increasingly dependent on consumer spending as a means of fuelling economic activity and giving the impression of a well-functioning economy. Psychology and other factors beyond the control of economic wizards are extremely significant in influencing and shaping consumer behaviour. Furthermore, consumer spending does not necessarily represent an equal proportion of production to spend on. For example, one of the major reasons for Pakistan’s current economic crisis is the presence of an extremely large proportion of consumption within the GDP, which relied mainly on imports, both for consumer purposes and for the purpose of production itself, through the import of raw materials, oil and machinery. Consumption can take place on borrowed money, and therefore on borrowed time.
Industrial production in the United States in April 2020 fell to almost the same level as it had during the 2008-2009 financial crisis, and though it has recovered, the recovery has been slow and has stalled out by last month. Economies globally are still facing supply chain issues due to the raging on of the Russia-Ukraine conflict, and countries such as Sri Lanka have even had to default on their international debts amidst such crises.
To rely on consumption as a means of pulling economies out of such turmoil seems dangerous. Whilst demand-side neoclassical economics would view this as a perfect example of markets functioning, where consumers are willing to fork out billions of dollars for entertainment offerings, it is a cause of great concern for those more concerned with the role of the state in the economy. Entertainment offerings are part of the service economy, and whilst they create jobs and provide gainful economic activity, they are oftentimes restrictive to the strata of society they are targeting. A ticket to a Taylor Swift concert nowadays costs more than a $1000 per person, and the entertainment provided at such a concert does not solve inflation or unemployment. The pooling of money through payments for such a concert if, of course, an injection of money into the economy, but the question is that how much of that money is actually going into investments into production.
Of course, such concerns always have at their root the priorities of normal people vs economists and policymakers. People value entertainment and the fulfilling of wants above such abstract concerns as investment in capital goods, as they very well should. For an economy like the United States with its vast resources, perhaps there isn’t even a trade-off involved in such a consumption decision; economic activity will go on as usual. But for countries that struggle with productive economic activity, the unrestricted flow of money into entertainment is a cause for concern. Huge shopping complexes, restaurants and real estate schemes tailored to the über-rich have long been a cause for concern in Pakistan, for example, exacerbated now by their exponential growth and the simultaneous destruction of industrial capability in the country.
This article is not attempting to pass a moral judgment on the spending of money by consumers on entertainment and the fulfillment of personal wants. It merely attempts to raise attention to the susceptibility of the current economic situation to collapse given a change in consumer behaviour. There is little structural support for the tower of consumption being built the world over, and even less so in developing countries, consuming beyond their means and on borrowed time and money. Governments, policymakers, and entrepreneurs must take notice of this phenomenon, and work towards channeling investment into productive arenas.
Taut Bataut – is a researcher and writer that publishes on South Asian geopolitics, exclusively for the online magazine “New Eastern Outlook”.