Consumers Have Real Power to Rescue the Economy

[statusquobuster]

When I was young talk about millions of dollars impressed me.  When I was older talk about billions of dollars dismayed me.  Now, regular talk about trillions of dollars, especially government spending, nauseates me.  People never seem to learn that they control the fate of the American economy.

It is far too easy to blame in bad times or thank in good times Wall Street, the government, or super-rich and powerful financial entities.  In actual fact it is always the spending of money by the general population on consumer products and services, housing, cars, or investments that drives the economy.  The core problem is that the public does not act in concert to serve its own interests but, instead, takes its cues from the external world and puts its trust in the wrong people and entities.

In other words, besides all the blame that rightfully can be heaped on many others for the current recession, it is also true that the public through its dollars drove the nation and the world into the current meltdown, mostly by using far too much borrowing.  They got suckered into using easy credit.  True, in many cases, they acted on incorrect and intentionally misleading information and were taken advantage of.  But so much of this consumer behavior was driven by greed or stupidity.  Confidence was placed in government regulation, Congress, mortgage and other financial companies, banks, and more generally in the plutocracy that runs everything that matters.  We had delusional prosperity because most of the population had willingly let themselves be deluded or manipulated by the power elites running the government and the economy.  In essence, consumer power was usurped or pirated by the worst people in our society.

Here is the most critical fact.  Consumers control over two thirds of the economic activity of the nation.  Long before the current economic meltdown I kept writing about the potential political power of consumers.  To get desired government actions, millions of consumers could threaten to cut their spending in order to get actions, like stopping the Iraq war or impeaching George W. Bush.  But without leadership consumers just kept borrowing and spending, maintaining the delusional prosperity that they themselves propelled.  Now they must act to fix things.

Now that the economic meltdown has hit us very, very hard it is critically important for people to understand that depending on the usual power groups to turn the economy around is dumb.  Thinking that President Obama, Congress and various federal agencies, in particular, will save us is continuing the delusional thinking that has been like a chronic disease.

American consumers must understand that literally within days and weeks THEY themselves could turn around the economy.  I was struck by data from the Federal Reserve that there is, even after the grotesque economic meltdown, presently a historic amount of cash is in bank and money market accounts, an astounding $8.85 trillion.  Look at that number again.  Relative to all the government bailouts and likely actions to stimulate the economy, that number is remarkable.  That humongous amount of cash (not the value of homes and investments) comes to about $29,000 for every man, woman and child in the nation, or roughly $88,000 per household.

Your first thought may be “I don’t have that kind of cash!”  In fact, economic inequality has risen terribly in recent years, helped by various public policies, making the affluent rich and the rich super-rich (and most of the middle class poorer).  This means that much of this national cash belongs to a relatively small fraction of the population, perhaps 20 to 30 million people.

No matter how much cash we have, we must put our faith in ourselves more than the government or the business and investment sectors to turn the economy around.  The more cash you have, of course, the greater your potential power to push economic recovery.  We often hear about consumer confidence.  Whether people are in the mood to spend or whether they have become too afraid for their personal financial security, causing them to spend as little as possible.

To turn the stock market and just about every segment of the private sector around, 10 to 20 million Americans must grab their inherent consumer power and start spending and investing with gusto, from home appliances, computers, cars, clothing, furniture, new homes, travel, and so on.

The stock market would immediately start to climb up, retail stores would stop closing, the automotive sector would resume producing cars, companies would start rehiring and the news media would start pumping out good news that, in turn, would trigger still more consumer confidence and spending.  Suddenly, a positive spiral of economic activity replaces the hoarding of cash that has driven the negative economic spiral.

Think of that number $8.85 trillion again.  Think of it relative to the billions and trillions constantly talked about to spur economic recovery through bailouts and other government actions, all of which must somehow channel money into consumers’ pockets or make credit for them more available.  A modest fraction of all that cash, say a quarter, has the economic power to do more good than anything the government does.  Better than all those government actions is the absolute certainty that rapid increases in consumer spending and investment would definitely drive the economy upwards.  Positive consumer confidence can feed on itself psychologically, become a viral message that shoots the economy forward, reverses unemployment, makes stocks and mutual funds and, therefore, retirement accounts more valuable, and so on.

We sure could use some national leadership that motivates and inspires use of consumer power, rather than all the blabbering about what the government should or should not do.  Americans have the choice to depend on politicians or to depend on themselves.  Either use YOUR cash-power or remain victims of greed and corruption, as well as the inevitable incompetence of politicians and government officials.  Consumer power awaits you.  The nation needs it to avoid still more massive federal deficits and borrowing and inevitable tax increases.  We the people must do much than vote; we must use our dollars to save our own financial health.  Unless we shift our thinking and spend, we will stay in economic hell for a long time.  We are the economic stimulus solution we’ve been waiting for.

[Contact Joel S. Hirschhorn through delusionaldemocracy.com.]

[True Federalist (진정한 연방 주의자)]

Shouldn't this be at delusionaleconomics.com instead?

The whole reason we're in the current economic mess is that consumers stopped spending.  While it would be beneficial to the macroeconomy for them to resume spending (at a sustainable level), at the microeconomic level, saving rather than spending makes sense.

[memphis]

People didn't choose to stop spending. They got their credit severely resticted. There's too much wealth in the hands of too few people. How many GM cars can you expect the top 1% of Americans to buy?

[Sam Spade]

The era of consumption-based economics is likely over.  That, of course, does not mean that lending will stop, businesses will not be created, production will not grow and all this, long-term.  But its pace will slow to a crawl for quite some time.  And there will be major contractions that will outweigh the growth greatly, as all the excess debt gets defaulted out of the system.

The key point, as the first sentence notes, is that people spending money (i.e. debt consumption) they do not have (and in general this means the poors) is going to be greatly reduced in the future.  If you want to bring this back, you can't.  Why?  Because the consumer cannot spend any more money (i.e. take on more debt).  The government is about to learn this lesson the hard way, and it's likely going to make things worse.  But who knows, I could be wrong.

I could go into this in more detail, but I'll stop for now.

[memphis]

people spending money (i.e. debt consumption) they do not have (and in general this means the poors)

Bull. Americans of all standing are in debt up to their eyeballs, well beyond their ability to pay. Poor Americans, Comfortable Americans, and stuggling American businesses of all sizes, are all leveraged way beyond responsible levels.

[opebo]

The key point, as the first sentence notes, is that people spending money (i.e. debt consumption) they do not have (and in general this means the poors) is going to be greatly reduced in the future.  If you want to bring this back, you can't.  Why?  Because the consumer cannot spend any more money (i.e. take on more debt).  The government is about to learn this lesson the hard way, and it's likely going to make things worse.  But who knows, I could be wrong.

No, money is where the State says it is, SS.  Right now the State is imposing a distribution of income which, as memphis pointed out, fails to provide much demand.  The State can simply re-order the distribution.  There's no such thing as 'cannot spend any more money', and that concept is beside the point any way.  The point is that the State needs to change the orders it gives to the population, in a way which gives well being, security, and a modicum of comfort (as well as capacity to consume) to the majority, rather than maintaining the status quo, in which only the top 1% receive any benefit.

[Sam Spade]

people spending money (i.e. debt consumption) they do not have (and in general this means the poors)

Bull. Americans of all standing are in debt up to their eyeballs, well beyond their ability to pay. Poor Americans, Comfortable Americans, and stuggling American businesses of all sizes, are all leveraged way beyond responsible levels.

And whose fault is it?  You can't escape the obvious because we function in a society of free will.

I don't deny that a good bit of blame (and fault) is deserving on the politicians who encouraged people to borrow and live way beyond their means through consumption.  And certainly a good bit of blame is deserving on the bankers and financiers who have done their best to screw the consumer while lending, not to mention their lies about the value of their own assets and the other various frauds.

The point is that we're all at fault and that we're all going to have to pay the piper.  Of course, the elites will get away with a certain amount of it, as always, because they are aware of the monster they created and are naturally preparing for the end game (as they have been doing since the "bailout").  They shouldn't be able to, but since they control Washington, what do you expect?  Maybe people will get mad about this when they're hungry, out of a job and out on the street, maybe not.

The federal government spending tons of money on tax rebates, green jobs, infrastructure and whatever else (I should say borrowing money - it is the more correct term) isn't going to solve the problem (sorry opebo).  People are not going to spend any tax rebate - rather they're going to save it, pay down debt or maybe use it on basic staples (food, clothing, shelter).  In fact, the continued borrowing is likely to hasten the final event on the horizon (not to mention make it worse) - when foreign governments stop buying our Treasuries as they realize they're in worse shape than we are and have to spend money to provide for their own.

jmcfst is smart enough to know this - I know that for sure.

Of course, maybe what I see upcoming in the event horizon is merely a mirage and the foreigners will keep buying up all of our debt.  I hope so.  But I'm betting otherwise.

[opebo]

The point is that we're all at fault and that we're all going to have to pay the piper.

So you mean what by 'pay the piper'?  A reduced standard of living for working people?

Why should anyone accept that?  Fนck the piper. 

Not that I'm saying they won't.. they've always accepted it, so probably they will again.  My point is that there is no practical reason to do so.

The federal government spending tons of money on tax rebates, green jobs, infrastructure and whatever else (I should say borrowing money - it is the more correct term) isn't going to solve the problem (sorry opebo).

It was the only thing that removed us from the last depression, SS.  History backs my argument (though admittedly we need to be 'spending' more like multiples of the 'private' economy rather than fractions).  And anyway the key is that the money can simply be printed, it doesn't have to be 'borrowed'. 

People are not going to spend any tax rebate - rather they're going to save it, pay down debt or maybe use it on basic staples (food, clothing, shelter).

Which is precisely why, in order to enforce the behaviours we want, we need to provide complete security.  People won't save if they know there is a cradle to grave safety net with health care and all the trimmings. 

Of course, maybe what I see upcoming in the event horizon is merely a mirage and the foreigners will keep buying up all of our debt.  I hope so.  But I'm betting otherwise.

They've got no choice, SS.  The world system is built around the hegemon.  Anyway in the deflationary environment of a depression we can simply print the dollars. 

[Matt Damon™]

Oh Opebo-chan. -_-

Sam Spade has a solid background in econ and you have... half-baked marxist theories. Why don't you quit while you're ahead?

[opebo]

Oh Opebo-chan. -_-

Sam Spade has a solid background in econ and you have... half-baked marxist theories. Why don't you quit while you're ahead?

No, SS is just a right winger presenting a point of view.  We're arguing politics - policy choices - not anything scientific.

Oh and by the way, its Keynes, not Marx, you silly ass.

[Sam Spade]

Oh Opebo-chan. -_-

Sam Spade has a solid background in econ and you have... half-baked marxist theories. Why don't you quit while you're ahead?

I wish I did, other than a couple of college economics classes.  Most of what I say is based on the amount of study that I spend on the side, which I have greatly enhanced over the past few months (for obvious reasons). 

Moreover, understanding economics helps with countless other disciplines as well, as Torie has pointed out time and time again.

Of course, I have spent time working in a business, actually having to make decisions that result in making money or losing money, which can never be underestimated in understanding how the real world functions.

[opebo]

What ended the Great Depression, SS?

[Beet]

Look, as far as money goes, you can move numbers around all you want. What is really scarce are goods and labor. Things. Real things. And on the margin, credibility. But credibility can be diminished in any number of ways.

The consumer, unfortunately, does not have the power to employ himself when market mechanisms of resource distribution break down.

At the same time though, the government must be careful because for the last ten years or so we have been living significantly beyond our means, at full employment, in the realm of real things, and the government cannot prevent a correction in that area if one is determined to occur. This is what the Keynesian analysis is missing.

In the last 10 years, gargantuan container ships filled with legions of real goods or resources have been coming into our borders from abroad. In exchange for these goods and services, we have been moving numbers around in computers. If that flow stops, and there are good reasons to believe it will (the human instinct toward fairness is to great, particularly for the globally poor countries to continually give hundreds of billions every year to the globally rich), our standard of living will fall. The only thing the government can do is to try and make it so that this fall does not correspond with too high a spike in unemployment.

[Matt Damon™]

Oh Opebo-chan. -_-

Sam Spade has a solid background in econ and you have... half-baked marxist theories. Why don't you quit while you're ahead?

I wish I did, other than a couple of college economics classes.  Most of what I say is based on the amount of study that I spend on the side, which I have greatly enhanced over the past few months (for obvious reasons). 

Moreover, understanding economics helps with countless other disciplines as well, as Torie has pointed out time and time again.

Of course, I have spent time working in a business, actually having to make decisions that result in making money or losing money, which can never be underestimated in understanding how the real world functions.

Surprising. You seemed like an econ expert to me.

This thread is quite interesting but I honestly have no idea how to go about fixing the system to kickstart it before 2010. I suspect we're in for a repeat of the early 1990s/early 2000s if Obama gets lucky and worse if he doesn't.

[Sam Spade]

Oh Opebo-chan. -_-

Sam Spade has a solid background in econ and you have... half-baked marxist theories. Why don't you quit while you're ahead?

I wish I did, other than a couple of college economics classes.  Most of what I say is based on the amount of study that I spend on the side, which I have greatly enhanced over the past few months (for obvious reasons). 

Moreover, understanding economics helps with countless other disciplines as well, as Torie has pointed out time and time again.

Of course, I have spent time working in a business, actually having to make decisions that result in making money or losing money, which can never be underestimated in understanding how the real world functions.

Surprising. You seemed like an econ expert to me.

This thread is quite interesting but I honestly have no idea how to go about fixing the system to kickstart it before 2010. I suspect we're in for a repeat of the early 1990s/early 2000s if Obama gets lucky and worse if he doesn't.

I read and study.  I just consider it another tool to have at my disposal.

A repeat of the early 1990s/2000s is the best-case scenario, period.  I still suspect it's "kicking the can" down the road, and the can never gets kicked as far each time you do it.

The big difference with the early 2000s btw is that consumer spending never dropped and you had loose fiscal policy, leading to the great rise in housing. 

Consumer spending is dropping this time and housing, well, you know what's going on there.

[Matt Damon™]

Indeed. The funny thing is that upstate NY's house prices are relatively unaffected.

[opebo]

Look, as far as money goes, you can move numbers around all you want. What is really scarce are goods and labor. Things. Real things. And on the margin, credibility. But credibility can be diminished in any number of ways.

Actually the whole point about depressions or recessions is that bad policy or inadequate economic activity makes 'real things' more scarce than they need to be.  For example, during the great depression both large amounts of manpower and large amounts of capital sat idle.  Men starved while food went ungrown or was unsaleable.  Factories sat idle while people made do without products such as clothing, shoes, housing. 

So the point here is not scarcity, it is policy.

You are quite right that there has been an excess of importation into the US, but this is really more a process of politically enforced wage reduction being imposed on the american worker, using the slaves in China, India, etc. as alternatives.  What is going on is not so much americans 'living beyond their means', but the politically powerful reducing those means, and transferring the net gain to the owners means. 

So please stop suggesting that american workers have had anything like a good deal over the last years.  They haven't been living it up in some irresponsible fashion - in fact that have been placed in a desperate no-win situation, and have pathetically tried to maintain their standard of living.  None of this needs to be the case if we reform policy to benefit the majority rather than exclusively the top 1%.

[Matt Damon™]

SamSpade: Based on your previous speculations, how do you see upstate NY faring during this?

[Sam Spade]

SamSpade: Based on your previous speculations, how do you see upstate NY faring during this?

Well, as you kind of correctly noted, since housing prices haven't been going up in upstate, it is highly unlikely that the bubble effects will be that great.

Of course, as I have said, upstate NY economically has been in the sh!tter for quite a while now.  So, I guess you have less further to fall.  Theoretically, these type of events should, ironically, improve the manufacturing base of this country for a lot of reasons (not going to go into specifics), but NY's tax system is so oppressive to upstaters in general and businesses too, that I really don't know whether you all can capitalize on this.

[Matt Damon™]

Oh well.

I plan on getting out of Upstate eventually so no big surprise. Plus, even if Upstate were doing well VA, NC, SC and GA have better weather.