What if there's no way out of this hole?
James Surowiecki of the New Yorker asserts that the widely-held belief that consumer spending is down because Americans are dutifully paying off debt is something of a myth.
He says consumers actually are spending:
Personal consumption hasn't shrunk as a share of the economy: in 2010, it accounted for more than seventy per cent of G.D.P., close to where it's been for the past decade. And consumers aren't saving at an unusually high rate; the savings rate during the recovery has hovered around five percent, significantly lower than the postwar average. And although consumers did reduce their total amount of non-mortgage debt very slightly in 2009, in the two years since, that number has risen again. By historical standards, then, consumer spending is high, not low.
Consumer spending is only "down," according to Surowiecki, if you compare it to the out-of-control binge of the housing-bubble years. We can't go to that well again, for obvious reasons. Consumers simply aren't going to repeat the shopping spree of the aughts, even if Washington agreed on "wiping out all of homeowners' negative equity." Too much wealth—real or imagined—was lost. And median incomes have been too flat, for too long.
The important lesson is that, if, after all, consumers aren't keeping their spending unnaturally low, we can't look to them to jump-start this recovery, even though they've been the engines of recovery in the past. This time around, business, export markets, and, especially, the government need to do what consumers can't.
Color me skeptical.
It could be that this system of ours is out of bullets. American businesses are modeled on consumer-driven growth, and have been since the end of World War II.
Our companies pay people big bucks to design and engineer things like iPhones, and then they pay not-very-big bucks to people in Shenzhen, China, who assemble the parts. And then we expect people in the developed world to pay big bucks for the finished product. The cycle is virtuous as long as there's enough demand on the back end.
But what if we can't spur that demand anymore? What if it's actually been gone for longer than we think—and we've been deluding ourselves through NASDAQ and housing bubbles? What if we can't fool that food-server at Appleby's or that hospice nurse into buying an iPhone by plying them with a home and a mortgage they can't really afford?
Assuming that government stimulus is neither forthcoming nor a long-term fix, can we realistically expect American businesses to pivot into an export-led growth strategy? Will companies like Apple pay Americans more than they pay Chinese to put together iPhone component parts? And what would Apple shareholders have to say about that?
I'm thinking out loud here, and I'd be delighted to hear why I'm unduly pessimistic.