As it turns out, this is my 100th blog post. Who'd have thunk it! Any how, after a break from blogging I'm ready to take on the second hundred, so let's go.
We, that is citizens of the U.S. of A., sometimes act like cats chasing a flashlight beam. We'll pay attention to a problem right up until the beam moves, then wham, our focus moves to something else. This seems to hold true in just about everything we do as a nation and the question of what to do about the lasting effects of the Great Recession is no different. And that could be a problem.
As the mortgage/housing bubble burst and banks stopped lending the issue that seemed to join Wall Street, Main Street, government and the individual was the issue of debt. Everybody had too much of it. Of course, we saw right away that this wasn't that big a problem for Wall Street since the Bush Administration was eager to push forward TARP to ease the pain of that particular segment of our economy. Main Street and the individual debtors were not so lucky. I don't even want to get started on the government's debt situation except to remind you of how much fun raising the debt ceiling was. That gave me nightmares.
So, as the whole countries' attention was focused on debt, and in particular, our personal level of indebtedness, we were cautioned from every corner that we owed too damn much, saved too damn little and the whole thing was, at base, a moral failure of the American people. If only we could change our ways. And, as strange as it may seem, we did change. Saving went from -1% to +5%, on average. Consumer spending all but stopped for a while. Some of this was not just a reaction to the moral dilemma, it was the hard economic reality of losing jobs, worrying about losing jobs and not being able to find new jobs. So, why then has the economy not turned around? We're all being good, moral citizens. We're not using credit to buy stuff we don't need. We're saving more. What the heck is the problem?
The problem is our short attention span and "all or nothing" way of dealing with problems. If the problem is too much debt we just need less debt, right? Wasn't that the rallying cry of the GOP during the fight over stimulus spending. "The first thing you do when you find yourself in a hole is... stop digging!" That makes perfect bumper sticker sense, doesn't it? Well, yes and no. And in our economy no is the better answer.
The U.S. economy, before the crisis of 2008, was 70% consumer driven. That is, 70% of all economic activity was people buying stuff. And not just buying stuff, but buying stuff on credit. So clearly the answer had to be, stop digging. But what if the hole one finds oneself in is starting to cave in. In that case one needs to keep digging in order to keep breathing. Go back to that 70% number. When consumers stopped digging, that is buying stuff, layoffs got worse. More people lost their jobs. More companies went under. More pain ensued. Why?
Because a consumer driven economy can't change over night to a saving and investing economy. There is way too much economic inertia. Just open the yellow pages, assuming that you still get such a thing. You'll find page after page of businesses dedicated to selling stuff to you, the consumer. Remember, 70%. No matter how much moral indignation is raised against our borrowing and spending ways, that's what the economy is set up to do. And, unless and until the consumer can start doing some of that spending again the recovery will remain weak. So what can we do?
We need, rather than tight money and increased saving, looser lending and a return to some pre-recession levels of consumer spending. We're seeing some of the latter this holiday season and I think that the results may surprise some folks. I know this sounds like I'm encouraging a return to the bad old days, but I'm only saying that this economy can't change over night, and to expect it to is a recipe for a double dip recession. Yes, we should encourage saving, but when the same banks that want to (and do) charge double digit interest on personal loans and credit card accounts can only offer savers <1% interest on saving accounts I really can't see the value to society of removing any money from the market place. Later, when the crisis is behind us? Sure. Now? Not so much.
So, let's all have a joyful holiday season and get out there and spend. Your country is counting on you!