AND ON THIS HAPPY NOTE…

1/21/10

I don’t spend as much time listening to economic and market “experts” as I used to, but I probably spend more time listening to the cacophonous drivel they produce than do most people. It keeps me informed and amused and checks my thinking.

Lately, most of the experts have been saying things like

“Consumer spending seems to be coming back, so recovery is in the cards.”

Or

“Consumer spending is not coming back as quickly or as strongly as we would like, so the recovery will be slow and tenuous.”

Or

“If consumer spending comes back as strong as we think, we should be well on the road to recover by late this year.”

Or

“If consumer spending doesn’t pick up, we might not get the recovery we are anticipating.”

The thinking that consumer spending is essential to a recovery is right out of Econ 101 and there is doubtless some wisdom to it; after all, consumer spending is something like 70% of our economy. So, naturally, those who study economics believe that, without a spring back in consumer spending, recovery will be impeded if not aborted. But think about it for awhile; if all that were necessary for a strong economy were strong consumer spending or, more mildly, if lots and lots of consumer spending is a vital, indeed, the most vital, component of a strong economy, we would have never experienced the economic problems of the last few years. Consumer spending was going strong and then, suddenly, the economy fell off the rails. And why was consumer spending going so strong? Because Americans spend money better (or at least in greater volumes; “better” seems to imply a quantitative judgment) than anybody else. We spend money like nobody’s business. If a free spending consumer leads to economic health, we should be in a permanent state of economic Valhalla.

So why aren’t we in such a state? The economic problems we are still confronting are the economy’s natural reaction to years and years, decades and decades, perhaps, of far TOO MUCH spending and far too little saving. We have forgotten how to save but intensified our mastery of profligacy and thus have borrowed, borrowed, and borrowed some more to sustain our dangerous and silly addiction to consumer spending on gimcracks, geegaws, and general manifestations of emptiness of our souls. The economy simply couldn’t take any more spending and importing money (Calling money borrowed to spend “capital” is somehow sacrilegious.). To continue to borrow and spend, this time, one presumes, in an effort to “save” the economy, is simply an unsustainable strategy; that we were able to keep that particular crap game going so long is remarkable, and is testimony to the wisdom of our forbearers who built this country, wisdom we have chosen to ignore in favor of useless spending and other excerebrose pursuits.

So, yes, a steep increase in consumer spending might get us out of the economic soup…temporarily, just as a few shots of Jack Daniels relieves the maladies caused by the prior night’s overfamiliarity with the same old chum. But ramping up consumer spending will only lead to a succession of economic “events” like the last one and, ultimately, to our economic ruin and irrelevancy, much like a person who continually treats hangovers with hair of the dog eventually destroys his body, mind, and soul. If we are to solve our economic problems in the long run, we have to reorient our economy away from consumer spending and more toward saving, capital formation, and, if not capital exportation, at least a cessation or severe lessening of capital importation. This is especially true since a pickup in consumer spending increasingly goes overseas and thus benefits our economy only indirectly, if at all, and only in the short run.

Reorienting the economy away from one nearly completely dependent on the baser aspects of our national character will prove difficult and will impede any short term economic recovery. Such a metamorphosis will be a painful, and slow, slog. However, our choice is between that and a series of fake recoveries that ultimately lead to the end of our economy, and probably of our country, as a going concern. Again, an economy that sees its mission as spending the seed corn is headed toward destruction.

A long, painful, and maybe not ultimately successful (It is, after all, very late in the game.) transition to a real economy or continuing on the primrose path to financial ruin with big smiles on our faces and endless paeans to the power of “optimism” on our lips are the two choices that we have created for ourselves. The smart money says we will choose the latter. Hey, it was a fun 234 or so years!