Saturday, June 12, 2010



This morning’s (i.e., Saturday, 6/12’s) Wall Street Journal featured a page A1 headline that read

Consumers Tighten Belts
Surprise Drop in Spending Adds to Doubts About Recovery’s Strength

One who read that headline in conjunction with the article that accompanied it could almost see the handwringing among the economic and financial experts. The idea seemed to be that if the consumers don’t spend, we’re doomed. Typical of the reactions to Friday’s reported 1.2% drop in May consumer spending was this one from Morgan Stanley economist David Greenlaw. “The report was a disappointment,” Mr. Greenlaw said with Wall Street’s customary circumspect understatement.

Baloney, I say.

Sure, according to the traditional (I would like to say “Keynesian,” but that term, in the hands of a few economic illiterati on the right, has taken on pejorative tones way out of proportion to the justifiable criticism Lord Keynes’ ideas would normally merit in sober, well reasoned discussion, but I digress.) C+I+G+X formulation for GDP, C is the critical component, composing something like 2/3 of this nation’s economic “output.” So simple arithmetic, and, some might say, common sense, indicates that if C is not robust, the economy, by conventional measures, will flounder.

However, there is something more at work here. For the last sixty or so years, and especially in the last thirty or so years, consumption has gotten entirely out of hand in this country. While people have been completely justifiably wailing and gnashing their teeth about the government’s spending money it doesn’t have, they have been doing precisely the same thing themselves. Note that following figures for household indebtedness as a percent of disposable income:

1952 36%
1985 69%
2007 132%

Only in 2009, in reaction to the financial meltdown, did the rate start to fall. It is currently at about 120-125%, almost (with a little arithmetical license) twice what it was in 1985 and nearly four times what it was in 1952. 1985, by the way, is not ancient history, and neither is 1952.

This trend simply has to be broken if the Republic is to continue as a going concern. At the expense of sounding trite, we cannot continue to eat the seed corn without eventually (which, in our modern society, comes much more quickly than it used to) starving.

For those who might concede my point but who also would quote Keynes’ wry observation “In the long run, we are all dead,” I might point out that even in the not so long run a reordering or Americans’ financial priorities might be essential to our economic survival. Note the following excerpt from this morning’s article:

The surprisingly poor sales cast doubt on the durability of a rebound in consumer spending that had allowed economists to raise their forecasts for U.S. growth this year…”

Even if one is concerned with the “durability” of this particular recovery, and not the survival of our once great nation and robust economy, one ought to cheer the cutback in consumer spending. After all, how durable can a rebound in consumer spending be if consumers don’t build some savings that they can later, according to the American custom, frivolously pee away? A cynic might say that being broke never stopped Americans from spending before and a cynic might, as usual, be correct. But somewhere, somehow, somethin’s gotta give; one can’t spend what one doesn’t have, unless one is the federal government, forever. Can one?

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