In a Financial Crisis What Happens to the Dog Bakeries?

What will happen to the dog bakeries? I ask this question, because this line of business (and perhaps many others) escaped my attention for so long. I saw my first one years ago in suburban St. Louis. As one interested in economics, poverty and history, it struck me that dog bakeries represented a perfect symbol for the many “discretionary” business lines that have been established in recent decades in what has been called the consumer economy.

This discretionary economy consists of businesses for which do not exist in societies with little discretionary income. It includes in its ranks a host of businesses that did not even exist before the last couple of decades, from dog bakeries, to Starbucks, tony cafes, specialized clothing stores and personal fitness centers. While these businesses might have been attractive to the households of the 1940s, 1950s, 1960s, or 1970s, people just didn’t have enough discretionary income to support them.

Stores specializing in accessories for the bathroom simply did not exist in the immediate post World War II years. There was little, if anything, akin to a Gap store, a Banana Republic or an Abercrombie and Fitch. Few people had either access to or membership in gyms or personal fitness centers. Gyms in those days were often barebones affairs for roughnecks as opposed to the fashionista hangouts of today.

Even in the 1960s and 1970s, many of the businesses we take for granted today simply did not exist. There were no Starbucks coffee shops. If you wanted espresso, you looked near a college campus or found an Italian neighborhood. Big box stores specializing in pets had not proliferated. Instead there were small stores crowded with everything from hamsters and turtles to birds and bulldogs. I suspect there were no dog bakeries.

It would be most difficult to reliably estimate the size of the discretionary economy. Much of the discretionary economy lies embedded in the larger service sector. By 2007, the share of private employment in the nation in services had reached 2.5 times the rate of 1947. Within that vast sector are companies which provide goods and services our forebears lived without like gyms, boutique coffee and dog bakeries.

The years since World War II have seen an unprecedented democratization of prosperity in the United States. Poverty rates have fallen and people live a far better life style than before. This has led critics to complain about the consumer society. For some, this “consumerism” was declared a false god and some even looked forward to a day of reckoning when the nation’s sins of over-consumption would earn it a deserved eternal damnation.

Generally, these critics lacked a decent understanding of economics. For one thing even the most frivolous types of consumption employ people. When households cancel the gym memberships or have no need of the dog bakery, people lose their jobs. Supporting a nation of 300 million people requires all of the consumption it can afford to provide employment, a decent standard of living, and yes, to reduce poverty.

So what happens now? If the ‘bubble’ expanded the discretionary economy, what will a prolonged recession do? It could be a mistake to presume that the economic downturn will soon be reversed and that previous consumption rates will be restored. One of the factors different about this downturn is the extent to which it has reduced the wealth of households. The IRAs and investment portfolios that many had relied upon to provide a comfortable retirement have declined steeply in value. This is a particular problem for the millions of baby boomers, who have spearheaded the development of the discretionary economy.

Now they seem less likely to consume with the abandon they showed before the prospect of running out of money became a realistic one. The coffee at home will be more attractive than the $5.00 latte at Starbucks. Rather than stopping at the canine bakery, people may now choose to buy more prosaic dog biscuits from a supercenter aisle. The recent decision by Starbucks to close 600 stores recently may be a harbinger of things to come.

But there is more. Boomers and others who have seen their savings devastated could reduce their spending on other items not directly part of the discretionary economy. The wardrobe – you need clothes, but not necessarily new suits every season – may not be renewed quite as frequently. The car may be kept a couple of extra years. This could place the entire auto bailout in jeopardy.

It would be a mistake to assume that there will be a quick and easy exit from the current economic difficulties. An affluent economy is necessarily a consuming society. Such an economy requires both necessities as well as the frills. It needs gyms, Starbucks, dog bakeries and the rest of the discretionary economy, just as it needs automobile manufacturing, information services and grocery stores. The destruction of the discretionary economy may not be as serious as the loss of homes in Detroit or jobs on Wall Street, but it can not take place without destroying the jobs and lives of people.

Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris. He was born in Los Angeles and was appointed to three terms on the Los Angeles County Transportation Commission by Mayor Tom Bradley. He is the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.”