Understanding Consumerism: Impact, Benefits, and Drawbacks

What Is Consumerism?

Consumerism suggests that increasing market-driven consumption improves happiness and well-being by acquiring goods and services. Economists often view it as vital for economic growth, while critics highlight issues such as social anxiety, environmental impact, and overconsumption.

Consumerism is related to the predominantly Keynesian idea that consumer spending is the key driver of the economy and that encouraging consumers to spend is a major policy goal. From this point of view, consumerism is a positive phenomenon that fuels economic growth.

Others view the drive to obtain more material possessions as problematic, causing individual anxiety and eroding the social fabric.

Key Takeaways

• Consumerism is the belief that increasing the consumption of goods and services is beneficial for individual well-being and economic growth.


• Keynesian economics supports the idea that consumer spending drives economic growth, making it a target for fiscal and monetary policy.


• Critics argue that consumerism can lead to materialism, environmental degradation, and psychological issues like increased anxiety and depression.


• Conspicuous consumption, a form of consumerism, involves buying goods to display social status, contributing to wasteful behavior.


• While consumerism can stimulate an economy, it may also encourage unsustainable debt levels and clash with traditional cultures.

Investopedia / Matthew Collins

Delving Deeper Into Consumerism

In common use, consumerism refers to the tendency of people living in a capitalist economy to engage in a lifestyle of excessive materialism that revolves around reflexive, wasteful, or conspicuous overconsumption. In this sense, consumerism is widely understood to contribute to the destruction of traditional values and ways of life, consumer exploitation by big business, environmental degradation, and negative psychological effects.

Thorstein Veblen, for example, was a 19th-century economist and sociologist best known for coining the term “conspicuous consumption” in his book "The Theory of the Leisure Class" (1899). Conspicuous consumption is a means to show one's social status, especially when publicly displayed goods and services are too expensive for other members of the same class. This type of consumption is typically associated with the wealthy but can also apply to any economic class.

Following the Great Depression, consumerism was largely derided. However, with the U.S. economy kickstarted by World War II and the prosperity that followed at the end of the war, the use of the term in the mid-20th century began to have a positive connotation. During this time, consumerism emphasized the benefits that capitalism had to offer in terms of improving standards of living and an economic policy that prioritized the interests of consumers. These largely nostalgic meanings have since fallen out of general use.

As consumers spend, economists presume that consumers benefit from the utility of the consumer goods that they purchase, but businesses also benefit from increased sales, revenue, and profit. For example, if car sales increase, auto manufacturers see a boost in profits. Additionally, the companies that make steel, tires, and upholstery for cars also see increased sales. In other words, spending by the consumer can benefit the economy and the business sector in particular.

Important

Some economists see boosting consumer spending as vital for a strong economy, regardless of its effects on consumers or society.1

How Consumerism Drives Economic Growth

Keynesian macroeconomics prioritizes increasing consumer spending through fiscal and monetary policy. Consumer spending makes up the lion's share of aggregate demand and gross domestic product (GDP), so boosting consumer spending is seen as the most effective way to steer the economy toward growth.

Consumerism sees consumers as the focus of economic policy, believing that more spending benefits the economy. Saving can even be seen as harmful to the economy because it comes at the expense of immediate consumption spending. 

Consumerism also helps shape some business practices. Planned obsolescence can reduce competition to make longer-lasting products. Marketing and advertising can become focused on creating consumer demand for new products rather than informing consumers.

The Role and Risks of Conspicuous Consumption

As standards of living rose after the Industrial Revolution, conspicuous consumption grew. High rates of conspicuous consumption can be a wasteful zero-sum or even negative-sum activity as real resources are used up to produce goods that are not valued for their use but rather for the image they portray.

Conspicuous consumption can greatly burden an economy. Using resources just to compete for status can reduce economic gains and cause destructive market creation.

Fast Fact

Sociologists view consumerism as symbolic consumption that may not maximize individual utility. Instead, it can serve as a signal to others and help establish one's identity. When it comes to being a consumer, social actors (e.g., peer pressure, in-groups, advertisers) limit your free choice.

Weighing the Pros and Cons of Consumerism

Advantages

Supporters of consumerism say spending boosts the economy and increases production of goods and services. As a result of higher consumer spending, a rise in GDP can occur. In the United States, signs of healthy consumer demand can be found in consumer confidence indicators, retail sales, and personal consumption expenditures. Business owners, workers in the industry, and owners of raw resources can profit from sales of consumer goods either directly or through downstream buyers. 

Disadvantages

Consumerism is often criticized on cultural grounds. Some see that consumerism can lead to a materialistic society that neglects other values. Traditional modes of production and ways of life can be replaced by a focus on consuming ever more costly goods in larger quantities.

Consumerism is often associated with globalization in promoting the production and consumption of globally traded goods and brands, which can be incompatible with local cultures and patterns of economic activity. Consumerism can also create incentives for consumers to take on unsustainable debt levels that contribute to financial crises and recessions. 

Consumerism is often linked to environmental issues because it causes pollution and waste. These can include urban sprawl, pollution, resource depletion, and problems with waste disposal from excess consumer goods and packaging.

Consumerism is also criticized on psychological grounds. It is blamed for increasing status anxiety, where people experience stress associated with social status and a perceived need to "keep up with the Joneses" by increasing their consumption.

Research shows that people who are focused on buying things often have worse moods and unhappy relationships. Experiments show that people exposed to consumerist values feel more anxiety and depression.2 In other words, science shows that consumerism does not make people happy at all.

Consumerism and the American Dream

“The American Dream” has always been about the prospect of success, but 100 years ago, the phrase meant the opposite of what it does now.

The original “American Dream” was not a dream of individual wealth and consumerism; it was a dream of social equality, justice, and democracy for the nation.

The phrase was repurposed by each generation, until the Cold War, when it became an argument for a consumer capitalist version of democracy. Our ideas about the “American Dream” froze in the 1950s. Today, it is often associated with consumerism.3

What Are Some Examples of Consumerism?

Consumerism is defined by the never-ending pursuit of shopping and consuming. Examples include shopping sprees, especially those that engage a large number of people, such as Black Friday sales on the day after Thanksgiving.

Another example of consumerism involves the introduction of newer models of mobile phones each year. While a mobile device that is a few years old can be perfectly functional and adequate, consumerism drives people to abandon those devices and purchase newer ones on a regular basis.

Conspicuous consumption is yet another example. Here, people buy goods to show off their status or present a certain image. This doesn't always have to have a negative connotation, as it can also signal pro-social behavior.

Is Consumerism Bad for Society?

While people need to be consumers in order to live and obtain their needs and wants, excess consumerism is widely thought to be a negative for society. Consumerism leads to negative externalities like pollution and waste. Moreover, consumerism begins to define people by what they own. According to some sociologists, mass culture popularized via the advertising industry creates consumers who play a passive role manipulated by brands, rather than as active and creative beings.4 There are systematic biases in the system that generate consumerism. If these system biases were eliminated, many people would adopt a less consumerist lifestyle.

How Does Consumerism Shape Social Class?

Tastes and preferences for consumption goods are stratified by social class, not only in terms of monetary cost but also appropriateness. Working-class individuals tend to consume certain types of food, media, dress, and pastimes that may differ from those in the top 1% or higher strata. Consumption defines both self and group identity: People aspire to “consume up” to “keep up with the Jones’," but people fear downward mobility.

Key Insights on Consumerism's Influence

Consumerism promotes the continuous acquisition of goods, defining personal identity through material possessions. Economists often regard this as a driver of consumer spending and GDP growth. However, psychologists and sociologists point out significant drawbacks, noting that excessive consumerism can contribute to environmental damage, societal inequality, and personal anxiety. A balanced approach to consumption, considering both economic benefits and social and psychological impacts, is essential for sustainable growth and well-being.