Thanksgiving Day, a holiday in many ways more popular than Christmas, is now becoming known as the night before Black Friday. Given that 72 percent of the gross domestic product (GDP) depends on consumer spending, most of which occurs in this season, this day does carry a lot of significance for the U.S. economy.
American business has long excelled at creating a sense of shortage amid abundance, especially during the holiday season, an anxiety that suggests one must act now or miss out. In the Valley Stream Walmart this Black Friday the anxiety got to such a pitch that, after waiting in the cold and dark for who knows how long, an impatient crowd smashed in the door. A part-time employee, hired to deal with the expected early morning crowd, was trampled to death. Several other customers were injured. Shoppers, asked to leave the store after the incident, were reportedly uncooperative and wanted to continue to shop.
No matter the eagerness of the Black Friday shoppers, with the average American now spending more than he earns it doesn”™t take a genius to comprehend that this state of affairs is unsustainable. An economy that depends on frantic purchasing by a deeply indebted public is not a dilemma that can long be ignored. The retail numbers for this holiday season should provide a hint of just how deep the problem is.
But this dilemma is a two-headed monster. Trying to jump-start the shopping spree is simply not realistic given the lack of credit. However, for the public to choose to pay off bills instead of continuing to consume threatens to extend the recession indefinitely. This conflict was evident in the first stimulus package doled out by the government. It was designed to prop up the retail sector. But the public had already gotten a hint as to just how perilous their finances might be and decided to save the money or pay off bills, hence no upward tick on the GDP.
How did we get here?
How did this country wind up dependent on the consumer? Germany”™s economy survives on its consumers to the tune of 50 percent and by all accounts the Germans have a higher rate of “happiness.” The American psyche does not acknowledge limitations. Maybe we are still in the classic American West adventure mode where there is always more on the other side of the mountain ”“ more land, more riches to exploit.
What probably kicked the economy into its current hyper state is a flock of deregulations promulgated over two administrations that caused the mail to be stuffed with credit-card options, each one seeming to cost less than the last plus the temptation of sub-prime mortgage schemes, making the average citizen feel there was no limit to the money available to spend. This is a highly simplistic explanation of the current mess, of course. It does not consider the impact of globalization on consumerism.
Enter John Maynard Keynes, a hero among economists even though he”™s been dead for 50 years. In an article titled “What Would Keynes Have Done?” by N. Gregory Mankiw (New York Times, Nov. 30, 2008), there is an explanation of what the economy”™s output of goods and services entails. It is traditionally divided into four categories: consumption, investment, net exports and government purchases. It is easy to see why the economy is so out of balance when the basic elements are laid out before us. A recent redefinition of “consumer economy” is an economy that only consumes, one that does not produce. Some economists disagree with that assessment. The original idea of “consumer economy” was to make a producer economy consume all that can be produced by full employment, by stimulating demand beyond real needs. This definition does not apparently consider whether the consumer has the real money to consume or whether the consumer demand will require importing products from other countries.
How do we get out?
Back to the four components of the GDP. Investment is the second category, meaning spending by businesses on plant and equipment and by households on new homes. Home purchases have until quite recently contributed to a booming economy but the exposure of the sub-prime debacle has stopped that move forward. Business has appeared to be driven by creating a quarterly bottom line that boosts its stock level. Growth in this context has meant acquiring more businesses, not expanding the core business. Finding cheaper labor overseas has also driven business decisions. Therefore, investment has become a very weak component of the GDP.
The weakness of the third component ”“ exports ”“ is well-known. Currently it is dependent on the fluctuation of the dollar, but even at its highest U.S. exports cannot begin to compete with China”™s import engine. That leaves the government. The president-elect has indicated a strong interest in infrastructure investment and that falls nicely in line with what Keynes would have recommended. We can expect massive bailouts, stimulus packages and all manner of boosts to the economy coming from Washington in the next few years. Infrastructure investment will bring the most rewards. The only problem with this obvious solution is that it loads up future generations with unsustainable debt.
There are two other humongous clouds on the horizon, not that you want to hear about that just now but ignoring them will not make your life better. One is “peak oil” ”“ remember that one? With rock bottom prices right now it is tempting to think that nasty problem has gone away. It hasn”™t, but more about that one next year. The other one is the international monetary system, which is so complicated it will take a lot of study just to even write about it. Suffice it to say, it is in a major tangle and cannot be ignored for long.
And finally, as my father always said “Support your local merchants!” Enjoy the season, your family and friends.
Surviving the Future explores a wide range of subjects to assist businesses in adapting to a new energy age. Maureen Morgan, a transit advocate, is on the board of Federated Conservationists of Westchester. Reach her at mmmorgan10@optonline.net.
