Consumer driven economic imbalances
by RAULC, Fri Jan 30, 2009 at 03:28:28 AM EST
The following reprents postings in OUTSIDE THE BELTWAY, a moderate conservative forum. The issue arose when Martin Feldstein criticized the stimulus spackage for allowing individuals to squirrel away $500.00. [Edited for continuance].
The problem with the current consumer driven approach is that we are feeding the money towards the end of its velocity probably to be shipped abroad and thus continuing the unbalances that are one of the roots of the current problem. Savings on the other hand places the money in the early cycle of transactional movement and thus stabilizes currency (banks) and does stir investment. This is not to say one or another is right or wrong- the key is to find right balance- the current consumer driven society, probably in its last legs, is wasting assets by sheer expenditure of crap (for lack of a better word) created by short term goals. A post consumerist society would improve the standard of living by improving quality. Instead of purchasing disposable goods that last 1-2 years- with a little more effort we can have to same goods but better produced lasting twice/three times as long-this goes to PCs, light bulbs, automobiles and toasters- not to mention edibles-medication, etc. The better (surviving) companies strategized long term-so should consumers. Part of the problem is that instant gratification is easy to market and sales is what we do best in an open society; but these approaches affect us all in the long term- tactics (sales gimmicks) such as teaser rates merely serve to push back a much needed balance. The bottom line is that the economy has been due for a substantial contraction and the issue really is whether we have a soft landing or a crash.
Can one advocate 90-99% consumer driven GDP? Consumption is not good or bad per se. It is the type of consumption that is affecting the economy. The numbers show an imbalance seen nowhere else, in part because of the twin deficits. The point is that we can consume and maintain our standard of living, but it is going to require a different approach; the current approach is deteriorating our quality of life as evidenced by the fact that a majority of Americans have not seen earning growth in thirty years. We live in an unsustainable economy. Does one honestly believe a society can go on forever with $720 yearly bill trade deficits (to be sure- that's an absolute number- in real economic terms-the number is 5% and that is what should be considered). As long as GDP growth is sub par to trade deficits it will be economically necessary (meaning it WILL happen) to suffer a contraction down the line.