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From Consumers to Commons
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| Contributor | ArmyDem |
| Last Edited | ArmyDem Feb 01, 2009 07:49pm |
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| Category | Commentary |
| News Date | Tuesday, January 27, 2009 01:00:00 AM UTC0:0 |
| Description | Consumer spending is unlikely to return to the levels it once reached, and so the economy will not recover until the government finds ways to invest in the common goods we all share.
Robert B. Reich | January 26, 2009
Not long ago, I was talking to someone who once had been a deficit hawk but had been turned into a full-blooded Keynesian by the current recession. He wanted a stimulus package in the range of $500 billion to $700 billion. "Consumers are dead in the water," he said fervently, "so government has to rev up the economy so they'll start buying again." I agreed. But I didn't tell him that his traditional Keynesianism is based on two highly questionable assumptions in today's world and that Keynes' underlying logic inevitably leads us toward something bigger and more permanent than my friend has in mind.
The first assumption is that American consumers will eventually regain the purchasing power needed to keep the economy going full tilt. That seems doubtful. Median incomes dropped during the last recovery, adjusted for inflation, and even at the start weren't much higher than they were in the 1970s. Families went on a spending binge over the last 30 years despite this because women went into paid work, everyone started working longer hours, and then, when these tactics gave out, went deeper and deeper into debt. This indebtedness, in turn, depended on rising home values, which generated hundreds of billions of dollars in home-equity loans and refinanced mortgages. But now that the housing bubble has burst, the binge has ended. Families cannot work more hours than they did before and won't be able to borrow as much, either.
The second assumption is that, even if Americans had the money to keep the spending binge going, they could do so forever. Yet only the most myopic adherent of free-market capitalism could believe this to be true. The social and environmental costs would soon overwhelm us. |
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