Consumers and the Economy

by Tor Dahl

So, is it finally dawning on everyone who the “job creators” are?  In the U.S., it is the consumer.  CONSUMERS are the ultimate arbiters of which jobs will stay, and which jobs will go.  Even when consumers have their financial wherewithal strengthened by tax cuts, or transfers, or unemployment compensation, they rule 70% of the economy, and hence make possible the jobs of those who work in that part.

The remaining 30% is dominated by private, public and corporate saving.  Banks hold about $2 trillion.  To help put money into the economy, they must lend money.  However, consumers overall are “deleveraging,” i.e. paying off debt, and do not want to borrow.  Corporations are flush with $3-4 trillion in cash, but don’t see any increase in demand, so they are neither borrowing nor spending.

What is left for banks is to lend money to the U.S. Treasury, where they will reap handsome returns, and add even more to their bottom lines by firing bankers no longer needed for the reduced operations.

Following the Bush tax cuts, the economy lost millions of jobs.  The fact that people receive money, whether as businesses or employees, does not necessarily mean that they spend the money that they receive.  What will make people and businesses spend is a situation where wages and salaries experience NET increases, prices go down, and businesses believe that they can increase their profits by investing more in the economy.  Only one strategy can accomplish all these objectives at the same time:  Increasing the productive contribution of every man, woman and child in the United States.

Real wages have not increased for decades.  The main reason for this is that the US health sector averages NEGATIVE productivity “improvement” of about -2.6% per year over the last 30 years.  That explains most, if not all, of the increased in health care cost, and it eats up all wage increases over the period.  Add the negative productivity “improvement” of education, and we see how consumer borrowing increased 13 times over the period, and government borrowing 20 times, just to maintain acceptable levels of health and education.  Unfunded wars and other mandates added further to government borrowing.

I know this is complicated and controversial, but diagnosing a problem cannot be ignored if you want to treat it.  We know the cure.  In a knowledge economy, which is 80% of our economy, the key factor is to invest in our human resources, and quickly.  It was how the US tackled the 14% unemployment rate after World War II using the GI Bill to send millions of Americans to school.

Omar Alsanari-Kreger  

August 10, 201 at 2:34 a.m.

The “consumerist” pinnacle is an interchangeable attribute that can be applied directly into any economic and/or ideological system.  There are many who underestimate the importance of a consumer and there overall impact they have on a given economy.  Contrary to what many would think, appeasing/meeting the needs of the consumer is not just the preoccupation of the capitalist, but must be addressed by any sane economic system.  At the end of the day, any civilization must economically sustain itself if it seeks to survive and meeting the needs of consumers will evaluate degrees of societal development.

Tor Dahl @ 2:37 p.m.

Most importantly, we must make health and education more productive, better incentivized, and focus on both upstream and downstream improvements; both disease prevention and early (and late!) education.  When we do, we’ll become the healthiest and most productive country in the world, and our current problems will become a painful memory that we value just for the learning it provided.

Omar Alsanari-Kreger @2:39 p.m.

Healthcare and education will uphold the survival lines of a self-sufficient industrialized society.  This could create some sort of formula in which lesser developed nations around the world could follow.

Tor Dahl @4:50 p.m.

You know it!  It has been done in many places, but the knowledge economy is new enough to be ignorant of the simple processes that will accomplish such a transformation.  It’s just a matter of education, and some insight.

Singapore went from a third world country to a first world country in one generation.  We already ARE a first world country.  It could be done in a year.  Or we can choose to continue the Congressional stalemates with the resultant credit downgrades, unemployment increases, wage reductions and home foreclosures.