Tuesday, January 10, 2012



This morning’s (i.e., Tuesday, 1/10/12’s, page A3) Wall Street Journal reports that, as the headline says, “Consumers Step Up Their Borrowing.” It seems that consumers increased their student loans, car loans, and credit card debt in November of last year at a pace (9.9%) not seen since the same month in 2011. Best of all, according to the breathless new economics types, credit card balances increased to $798.3 billion in November, 2011, or at an 8.5% annual rate from the previous month.

Apparently, a populace returning to the crack cocaine of credit that sunk our economy a few years back is unmitigated good news for the economics community. The closest thing to a negative comment concerning this resumption of the credit debauch reported in the article came from Mr. Dennis Lockhart, president of the Atlanta Fed, who said that while household finances have improved, they were not yet “rosy-cheeked,” whatever that means. But that remotely negative comment came only after Mr. Lockhart said

The apparent stronger consumption at year-end was associated with falling savings rates, compensating for stagnating income growth. I question whether this consumer spending momentum will be sustained without a pickup in income growth,”

a statement that concedes that increasing spending is good but would be better if not accomplished by depleting savings that could be considered restored only in a relative sense.

The general reaction of the economics profession to the resumption of financial ineptitude was well summarized by the comments of Mr. Paul Edelstein, an economist at IHS Global Insight, who opined

Consumer credit growth is a positive sign for the recovery in that it signals increasing demand and willingness to spend.”

Okay, I get it; I am not an economic illiteratus, like all but one of the gentlemen currently traipsing through New Hampshire and the guy whose job they want. Consumer spending accounts for about 70% of the economy so, by plugging numbers into a formula, once can conclude that increasing consumer spending is good for the economy. One would hope, however, that those who purport to understand economics, and those both in the private and public sectors charged with revivifying our economy could see beyond simple formulae.

The economic soup from which we are currently supposedly emerging was caused by irresponsible spending and borrowing by the government, consumer, and, to a lesser extent, business sectors. Attacking the problem with more spending and more borrowing is, as I have said ad nauseam in the past, very much akin to taking a few shots of Jack Daniels the morning after a ferocious bender and will have approximately the same effect.

Yes, the recovery will progress more slowly if we finally bite the bullet and decide, as a nation and as individuals, to put or finances back in reasonable order by foregoing everything our little hearts desire and putting some money in the bank. But a recovery built on a solid foundation of fiscal rectitude will be far more enduring and ultimately immeasurably more salubrious than one built on the thin gruel of a return to the financial fleshpots.

No comments: