Monday, November 10, 2008

Consumer Confidence or Consumer Recklessness?

This post was taken from Donald Goodman's personal blog.

The current economic crisis is often blamed in part on a “crisis of consumer confidence.” The essential problem, according to those who place such blame, is that consumers just aren’t confident enough. Because they’re not confident enough, they’re not making lots of purchases, which cuts down on orders from retailers, which cuts down on transportation orders for distributors, which cuts down on orders from manufacturers, and thus hits everybody. The important thing, it’s said, is to get consumers confident again so that they’ll start spending again.

Along this vein is the oft-repeated statement that “the consumer is two-thirds of the economy.” Since the consumer is two-thirds of the economy, we need to get him spending his money, or the other one-third won’t work anymore. What’s more, that single two-thirds will shrink, thus costing everybody, consumer and otherwise.

Let’s think about those statements for a moment, however. First, let’s take “the consumer is two-thirds of the economy.” Really? If consumption is two-thirds of the economy, what exactly is the consumer consuming? Presumably, the other one-third is production and services; but let’s be charitable to our dear country and presume that the other one-third is production. (In reality, of course, a great deal of it is, in fact, services; but we’re being charitable.) That means that we’re consuming twice what we’re producing.

Think about that for a moment. If we’re consuming twice what we’re producing, where is all that extra stuff coming from? The answer is China; Japan; Europe. Essentially, elsewhere. And because we’re consuming twice what we’re producing, we’re also spending twice what we’re earning. Where does the extra money come from? The answer is China; Japan; Europe. In other words, we’re borrowing to cover for the extra consumption that doesn’t balance what we produce. And, as a corollary, we’re accumulating a great deal of debt and paying a great deal of interest on it.

And that leads us to thinking about the other notion now, that the problem here is one of “consumer confidence.” Don’t we really mean “consumer recklessness?” The problem, such people say, is that consumers just aren’t spending their money like they used to; they’re saving it instead. Tightening their belts. Never mind that once this great country prided itself on the thrift of its hard-working citizens, noting that said thrift and hard work are the elements which made it economically great. Such people, though, want us “consumers” to just keep spending our money, even though we really need to save it. Even though, in the past, the money that we’ve spent is often money that we didn’t have, and that we had to borrow to spend. We need to retrench; pay off our past debts; save up a cushion in case of a fall. That means that we, as consumers, are not “confident.”

In reality, though, it means that we, as consumers, are not reckless. We’re being wise for a change; we’re being careful only to spend money that we actually have; we’re foregoing present pleasures for the sake of future safety; we’re actually, horror of horrors, paying off some debts instead of constantly racking up new ones. This is terrible! Consumers aren’t confident! Can you imagine what might happen to the economy if this spreads? What horrible disasters might befall our nation if such ludicrous practices spread, and our government adopted such an insane scheme so lacking in “confidence?”

Modern economics have led us to a strange place. Though this country was built on working hard, producing goods, foregoing unnecessary consumption, taking debt as rarely as possible, and paying off necessary debt as quickly as possible; though the wealth of every country has been based on these perennial, thrifty, and diligent practices; we have nevertheless convinced ourselves that our wealth is based on spending as much as we can, racking up as much debt as we need to in order to get everything we currently want, and letting other countries bother with the annoying hard work, production of useful goods, and delayed gratification.

Here is national suicide. We need to return to the basic principles of sound economic management. Namely, that it is production which is primary, not consumption; that it is better to save than to buy what we don’t need; that it is better to be free of debt than to have debt; and that gratification of our present desires need not be immediate, or even occur at all. Thrift; moderation; looking to the future. There is national prosperity. There, and there alone, is the solution to our economic crisis.

Praise be to Christ the King!

1 comment:

Anonymous said...

I'm afraid that you are too optimistic.

You say that we are borrowing money from China. Yes, this is true. But this is only the top of the iceberg.

China does not need our money. She needs our technology.

China is not lending us money hoping to take it back in the future; but she knows very well to use "the balance" to push our government into releasing our top technology.

For example, if we speak about microelectronics, most people think that the latest technology belongs to us, and only to us, while China is struggling to reproduce our 5 year old chips. Completely wrong.