You are familiar with Zen koans like “What is the sound of one hand clapping?”. They are designed to open up consciousness with paradoxical or impossible questions. Well here’s one: Can we have an economy that is not so dependent on rampant consumer spending?
After 9/11, Bush’s solution was to exhort consumers to spend more as the way to propel ourselves out of the downturn. Today we are hearing similar advice.
Problem is, people are saving (or at least not spending, which I don’t think is quite the same thing) rather than spending.
According to a report on today’s radio show Marketplace, this is causing serious problems. On the heels of today’s announcement that Macy’s is laying off thousands of workers:
Chalk the Macy’s announcement up to a number out from the Commerce Department. Consumer spending fell for the sixth straight month in December. See, the financial crisis has convinced Americans to try something a little different — it’s called saving. But now this sudden attack of thrift is having dire economic consequences.
As Marketplace’s Steve Henn tells us, the worst part is that it could be habit forming.
STEVE HENN: It’s good to save some money. But when everyone starts saving at the same time, it can be an economic disaster. Goods pile up on store shelves, companies cut back on production and lay off workers. Then consumers pull back even more.
Greg McBride at Bankrate.com says the unemployment rate is only 7 percent, however …
GREG MCBRIDE: The other 93 percent think they might be next.
Economically secure consumers should be buying more. But McBride says fear is a powerful thing. It quickly changes economic behavior and might even break America’s shopping habit.
I actually have great faith in the resiliency of the American shopping habit - despite downturns it has continued ever upward. But that’s not necessarily a good thing. The past decade of consumer spending was unsustainable in two ways:
- We were spending beyond our means, on credit and using inflated house prices and equity
- We were (and continue) to buy at a rate unsustainable for the planet. The US is 5% of the world’s population but consumers 25% of its resources. The domino effect is that China and others produce massive quantities of stuff for us in the US, which feeds their economies, their resource usage, their environmental impacts.
Neither of these can be put back in place as we re-tool the economy. We need to figure out a way to have a large economy (nationally and globally) that does not rely on us buying more than we can afford, and making more than the planet can supply.
No answers here. We need to all put our thinking caps on.