Consumerism, or Consumer Confidence?
When spending flags, what can we do?
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by Evan Wilhelm
"According to Keynes, the root cause of economic downturns is insufficient aggregate demand," quoth Mankiw in the NYT. Simply, people are spending less. This can be for two reasons, either: a) they want to, or b) they have to.The latter cause is easily understood: if you've lost your job or merely haven't seen your income increase with the cost of living, you tend to put spending on hold.
The former is more peculiar. When Phil Gramm ticked millions by calling the nation's recession was "mental", it is very likely he was thinking of the people who curb their spending not because they are forced to, but because they fear that they could become part of the latter category for any of the named reasons.
When an economy is in trouble, it can most readily be saved by those people who still have the power to spend doing so. This is why some of the less-charitable economists show disdain for this group. They see this group as those who hold our salvation, though they hold back out of fear and self-interest. And, when those who can spend hold back, the government steps in to spend in their stead, which is anathema to their free-market orthodoxy.
But what is this group really thinking? It's usually not so conscious a thought as "I might lose my job, so I'd better hoard up cash in case I do." It's usually something more along the lines of "Maybe I don't need this thing after all." It's as if media reporting on corporate and economic troubles -- "don't spend more than you have to" -- is counteracting advertising -- "buy this thing, you need it" -- such that people are actually deciding what they need and what they can do without.
And the effect is what economists and reporters call "low consumer confidence" (which has the same condescending ring that Phil Gramm's comments did), when it actually is just lower consumerism. People are deciding they're happy with what they have and they don't need more stuff. As long as people don't lose their minds navigating the conflicting messages, this is actually a very good thing for individuals. It's bad, however, for an economy that is dependent upon full employment.
Robert Reich concurs, saying that “most other Americans are now discovering they can exist surprisingly well buying fewer of the things they never really needed to begin with,” and proposes a solution that gives the government the role of spender of last resort: public programs supported by income taxes. Though the programs he proposes are good and often necessary, income taxes won't be sufficient if we're facing the dilemma of chronic underemployment.
Whatever solution we concoct must address the fact that: a) individuals might not be able survive on purely employment income alone, and b) taxing employment income might not get you as far as it once did. A potential solution that fits the bill could be extensive natural resource taxation. These industries -- such as oil, land, airwaves -- are among the most profitable on the planet, since most of the income is taken from control of common resources, rather than productivity. Those who profit didn't make them, they just got to them first.
The government should step in, yes. Though instead of as a buyer where consumers no longer can, they should as a supplier where corporations should not. Even if some of Reich's suggested social programs are funded, they in no way match the revenue that is available from natural resources. The remaining surplus can be returned to each citizen as a share of the commons, thus addressing dilemma (a).
And, reported recently, we have an appointee for Secretary of Energy who might be amenable to such a solution. The Nobel Laureate Steven Chu has advocated the increasing of gas taxes. Most often this tax is proposed with an income tax decrease to offset it. This solution moves in the direction of actually addressing our economic problems.
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Also see: He was right about the recession; can he hit it again?
How to Make the New Year Better
When cops don’t act, blame the market? |
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