The Consumer Economy

How long can a family continue spending 20% more than it earns in income before that policy comes crashing down on its head? A while, certainly, depending on its credit rating, but nowhere near indefinitely. A government can do it forever, theoretically, because it has the power to print money.

But how long can a nation’s economy do it? For decades, economists have said with complete calmness that 70% of this nation’s economy is “consumer spending” and have never batted an eyelash over the obvious corollary to that, which is that such an economy is one which piles up ever increasing debt. How long can that continue?

Well, we found out in 2008. The problem was not the “housing bubble” and the overvaluation of housing, the problem was the inability of homeowners to pay the mortgages on those homes. That bubble kept inflating as long as those mortgage payments were being made, it was only when the mortgages started defaulting that the grits hit the fan.

And yet even now, how is Paul Krugman saying that we can get things going? “We are not, after all, suffering from supply-side problems,” he says, “This is a demand-side slump; all we need to do is create more demand.” Right, he wants to recreate the “consumer economy,” the same one that crashed just three years ago.

Obama is describing this month’s increase in unemployment as “a bump in the road” and, two full years into his administration, is still blaming current conditions on his predecessors and offering no real solutions other than the same tax cuts and spending increases that he says were the causes of the recession to begin with. He calls them “investments” rather than spending, but how they translate into long term productive private sector jobs requires the services of a magician to explain.

Talking at an auto plant, he says that one automotive job supports many other jobs in the city and region and proves his contention by rattling off a list of fast food hamburger stands. He brings to mind my father’s opinion of the so-called “service economy” of days past. “Hell,” he would say, “we can’t all make a living selling each other hamburgers.” Apparently Obama thinks we can. Um, “Yes we can?”

We need to return this nation to being one which makes things, instead of a nation of laggards which merely consumes and produces only debt.

We could start by telling China and its friends that their products will not enter our country until their workers are paid on an equal footing with ours, and until their markets are as open to us as our market is to them.

We are the world’s biggest military, but when it comes to economic policy we allow other nations to ship their cheap shit into our market while they keep their markets closed to our products and commodities. Sure, we need them to buy our debt, but they need us to buy their products, too. If we aren’t buying their products their economy crashes, and it’s about time we started using our economic power as willingly as we do our military force.