David Leonhardt has an interesting piece in Sunday's New York Times pointing out the much-larger-than-usual decline in consumer spending in this relative to past downturns.
In an economy that's 70% consumption, that's an important reason why we're stuck in neutral. But Leonhardt intimates that this decline in consumption is structural not cyclical ("The old consumer economy is gone, and it's not coming back.")
I'm not so sure. Seems to me that for the structural call to be true you'd want to see at least the beginning of a change in the consumption share of GDP, and that hasn't happened.
The figure shows, in fact, that consumption as a share of GDP was 71.1% most recently, tied for the highest share on record, with data going back to the 1930s. Doesn't mean the NYT is wrong -- but it's probably too soon to assert a structural shift.
What gives? How could the large declines Leonhardt finds comport with the elevated share? It must be that the fall in consumer spending is proportionate to the decline in GDP.
If you want to see a structural change by my definition -- one significantly and lastingly altered as a share of the economy -- look at investment resident housing. That's averaged about 5% forever, but as you can see, it did a total cliff-dive with the bursting of the housing bubble. My guess is it will be a while before that share climbs back to historical levels.
Two more observations about this. One, the second figure shows that the housing bust is largely behind us in that this share, bound by zero, can't fall much further. That doesn't mean we get the boost we need from a normal housing market coming out of slump, where low interest rates trigger new buying. It does mean we get less of a drag from the sector.
Second, regardless of GDP shares, Leonhardt's punchline is exactly right -- consumer spending is way down and it's not getting much of a boost from jobs and paychecks. Which means that fiscal stimulus is about the only game in town, or it would be if policy makers weren't spending practically every waking minute on budget cuts.
This post originally appeared at Jared Bernstein's On The Economy blog.
We have an automated and tech world that can easily have a good citizens safety net, good infrastructure and green energy programs. Sweden, Germany and Holland all do fine.
Vote for the Progressive caucus in the primaries and the dems in the general. The real founders types.
http://cpc.grijalva.house.gov/
Not the DLC corporatist anti-populist folks:
http://en.wikipedia.org/wiki/Democratic_Leadership_Council
So why aren't businesses investing in America? It's not like they don't have the cash.
The reason is that massive deficits scare that beezus out of businesses. They know that high government debt brings high taxes, inflation, and interest rates, all of which hurt profits.
In other words, spending cuts might be just the thing to regain business confidence, and thus revive the economy.
So why are consumer's spending? They are afraid of losing their jobs in this economy and are hoarding cash, which used to be called saving. The same caution is affecting consumers that is affecting businesses which are also hoarding cash.
The stimulus on infrastructure has done nothing on main street where most lost jobs are. If the government really wanted to help, they could have taken that 830 billion and given a tax rebate like Bush did, giving about 6,000.00 to each of the 138,000 taxpayers. Think of what that would have done for consumer spending and main street economy.
Workers' share of national income plummets to record low - Yahoo! News
"Over the last decade, the share of U.S. national income taken home by workers has plummeted to a record low.
Check out the chart below, compiled by the Labor Department, and posted this week by conservative writer David Frum. It shows that the decline began with the brief recession that followed 9/11 in 2001. But it continued even as the economy picked up again, and got even worse once the Great Recession hit. In the weak recovery since then, workers' share of income just kept on falling..."
Some might call it "saving for retirement".
Expect more "hoarding" if the SS is cut.