This is kind of a long OP, but I have a lot on my mind that I want to get out and get some answers and opinions on.
For a long time I have heard criticism that Americans overspend and over-consume and I agree (and I used to be bad about this myself). After our economy crashed a couple of years ago I thought it would be a great opportunity to change our ways. However, from everything I have been hearing, since we are consumer based, then in order to decrease the unemployment rate we need to increase consumption so that manufacturers and service providers will hire more people to meet increased demand. So it seems in the short term that we must carry on as we always have. And as someone unemployed since 2007, getting the economy back on its feet and unemployment levels down is very important to me.
But thinking of the longer term, what can we do to transition away from, at the very least, over-consuming, if not transforming our economy altogether? I could be wrong, but it seems to me that if we simply start consuming less then companies would start laying off people again and unemployment would start going up so we need something to cancel that out. The only thing I can think of would be to increase exports to make up for Americans consuming less. So, this brings me to some questions.
[ol]
[li]Do we have items that either we are currently exporting that we could increase and/or items that we could start exporting to help us transition away from our consumerism?[/li][li]Are the other ways we could move away from consumerism without much job loss?[/li][ul]
[li]This could either mean a method where people do not lose their jobs, or a method where there would be new jobs waiting to replace the old lost jobs.[/li][/ul]
[li]Or would we need a combination of increased exports and other methods? I am guess that this is what would most likely work.[/li][/ol]
Something else that just occurred to me. We as a country are heavily reliant on credit. If we cut down on spending significantly and start doing a better job of living within our means how badly would this hurt the banking industry? Would there be lots of job losses as banks and other lending institutions would be doing less business? Would we see lots of unemployment from that? And if so, how would we be able to counter that?
Actually, we have changed. Saving is up, spending is down. Will that be a long term change? I doubt it.
If you want less spending, then the best way to do that is to tax it. Otherwise, I’m not sure how you can legislate spending limits in a free society. Keep in mind, though, that our consumer debt crisis was mainly in the real estate area. The crash in housing prices meant many people could no longer afford their houses.
Otherwise, “consuming too much” is a value judgement. What’s the “right” amount of consumption? Who determines that? Obama is going to take away our credit cards!! :eek:
The trouble with these simple fix solutions is that they generally have exactly the opposite effect than the one the person making them is trying to achieve. The biggest problem here is deciding (for someone else) what they ‘need’ or should have, instead of letting people decide for themselves…always (IMHO) a bad move.
We export plenty of things. If what you are trying to do is equalize our trade imbalance, then that’s different than stopping ‘consumerism’. There are some ways to do that, if that’s what you are really after. If what you want is to change peoples lifestyles or decide for them what they should or shouldn’t have, I don’t see how exporting more will really modify the equation.
Well, you could nationalize all the businesses and just have people work for the state. You might get nearly full employment that way, and you’d end up with something similar to the Russian Soviet period, where too few goods were on the market, so you had long lines for everything that was available (as well as a thriving blackmarket for folks to buy all the stuff you feel they shouldn’t have). In our system I doubt that you could push through such a move by fiat…you’d need to change the nature of Americans at a fundamental level to make them not want to buy stuff (hell…you may have to change human nature, since I think that if goods are available people will want and buy them).
Again, I don’t see why increased exports would change the equation. It’s not a zero sum game, if that’s what you are implying. If we export more, that doesn’t mean there would be less for people to buy here in this country.
John Mace
Well, from what I am hearing our high unemployment is precisely because our spending is down. That is not the only reason, but it is one reason that I hear why companies are reluctant to hire more people. With less people buying, manufacturers are producing less and so need less people. Of course this means that retailers have less inventory so they are effected to. So it seems we need to go back to increased spending to help end this high rate of unemployment.
As for “consuming too much” all I am talking about is decreasing our reliance on credit.
I am not talking about the government stepping in and deciding for people. I am talking about both people voluntarily spending less then what we could do to cushion the job losses that would most probably result from that.
Again, I am not talking about deciding what other people should or should not have. I am just asking, if we decrease our consumption and it resulted in job losses, would increasing exports be a way to help add jobs which could replace the jobs lost from the manufacturing and service industries?
I do not know why you are assuming that I want the federal government to step in and force changes or hire all of the unemployed or anything like that. When I posted the OP I was not even thinking of the government at all. Thinking about it, I guess the government might need to be involved somehow, but I was thinking more of people and industry voluntarily making changes, not something forced by the government.
Yes, and that would be the point. If we consumed less then maybe other countries might increase their consumption and we could provide the products for them. Again, this would not be a forced consumption reduction by the government, and I do not know if any of this would work. But I think it is worth discussing.
Well, if you want to do that, it’s a lot easier - just raise the requirements for credit. No home purchases without 25% down. No car loans unless you you can put at least 25% down on the car. Eliminate credit cards and make everyone use debit cards. Banks cannot lend money to people unless they have been in stable jobs for at least two years and their total debt payments are less than 20% of their gross income.
You could also achieve something similar by making bankruptcy laws much tougher - allow banks to go after primary dwellings, primary vehicles, and personal belongings. Put people in debtor’s prison if they can’t pay.
Of course, then the complaint will be that the people disproportionally hurt by all this will be the poor, since they are the ones with the unstable jobs and who can’t save 25% for a home, etc. And you’ll see all kinds of unintended consequences since it’s quite obvious that people do want and need all sorts of credit even in tough times (or especially in tough times). So you’ll get more loan sharks, more ‘creative’ financing that skirts the law, and other side-effects that may be worse than the problem you’re trying to solve.
The other option would be to just get your own financial house in order and stop worrying about your neighbor’s credit situation. The best way to make that a reasonable choice is to stop bailing people and institutions out when they make bad decisions so your neighbor’s bad credit doesn’t impose a cost on you.
Oh. Well, in that case not a chance…IMHO. I don’t see how you can get people to voluntarily agree to spend less unless you set up the conditions to force them to spend less (raise credit limits, make less money available to them, etc). At least not by any large degree (obviously, right now people are spending less because they have less to spend).
I’d say that, yes, if you could make people spend less (or figure out some way to ensure that they voluntarily spent less), that this would lead to less prosperity not just in the US but world wide, until the void was filled somewhere else.
I think that if we substantially decreased our consumption that it would also have a negative effect on our exports, since the countries we would be exporting too would most likely be taking similar downward hits to their economies. I don’t believe that you could balance a large scale decrease in imports and the subsequent job losses from such a downturn with new jobs from exports, even if somehow everything else stayed the same (i.e. this didn’t cause another world wide recession).
Because I don’t believe people would voluntarily decrease their spending or consumption by a large enough degree to make more than a few percentage points difference, not without either government intervention or economic disaster that forced them to do so…sort of like how Ireland/Greece has been forced to cut back, not because they necessarily want too but because they have zero choice.
It might happen. Possibly Europe or maybe an emerging China would fill the consumption void. That would mean that the US would be in economic melt down and I’m unsure how long it would take us to recover, however, and also how long the transition would be. If it happened suddenly then it would probably meltdown much of the worlds economy, since their manufactures are geared to using us as their market, and switching that (let alone the logistics) would probably take time and energy, with an inevitable downturn in the mean time. But I would guess it it happened gradually then, sure, someone would fill the void. I’m less sure we could balance things out, trade wise (in fact I’d say we couldn’t), but someone would surly fill the void we left…there are several promising candidates out there atm.
How are you going to do that? You can’t change behavior without changing incentives. Somehow, the conditions that lead people to over-borrowing have to be changed. The options are:
By Fiat. Simply use the power of government to control it. Bad idea.
Look for government policies that actually encourage borrowing, and end them. Good idea.
Change the culture, through education or pain.
We borrow too much because governments have made it easier to borrow. Home interest deductions encourage buying the most house you can afford. Lax bankruptcy laws have made it easy to declare bankruptcy and avoid debt. Government-sponsored student loans make it easy for students to borrow themselves into long-term indebtedness. For ten years, the Fed has held interest rates artificially low, punishing savers and rewarding borrowers. The ability of banks to securitize mortgages and sell them off to Government-Sponsored Enterprises has taken away the risk of bad loans and encouraged them to offer sweet second-mortgage deals to homeowners with equity.
Get rid of all the borrowing incentives, level the playing field, establish a sound monetary policy, then let the people find their own equilibrium between savings and consumption.
Changing the culture through pain - the recession is doing that. Once in a while, reality asserts itself and the people who borrow up to their eyeballs get smacked down by life. Then everyone learns that maybe it’s a good idea to save some money. Unfortunately, when the government bails everyone out and then spreads the pain around to both savers and borrowers, the effect is the opposite - people learn that saving is a sucker move, and borrowing is even better because if everything comes crashing down the government will just take the money from the savers and give it to you anyway.
There’s definitely a feedback loop. Where I live, in Silicon Valley, companies make a lot of their money (in some case most of their money) overseas. If you want to help these companies, you have get the world economy moving, not just the US’s.
Well, that’s easy. Sam Stone gave you a number of ways, but it’s unclear any of those would be politically viable. From my own standpoint, I would leave it to the marketplace to "figure out’ what the proper savings rate is. That means the government does its best not to favor the use of credit over the non-use of credit.
One thing I want to say is that, just in case anybody is misunderstanding me, I am coming at this thread purely form an economic standpoint. When I talk about people over-consuming and relying too much on credit, I am not talking about morals, values, scruples, ethics, or anything like that. My criticism is purely economical, and nothing else.
Economists disagree with each other about a lot of things, but one thing they normally agree on is that in general, and yes, there are exceptions, but usually spending more than you make is a bad thing. A lot of Americans spend more than what they make. Now, how this affects them obviously depends on the person or household. Some people can do this forever and some people get bit in the ass. In general financially this is a bad practice. And that is why I’m wondering what it would take to reduce this practice, and if we did, what would fill the gap to offset or avoid massive job loss.
And while I am not thinking much in terms of government intervention, I would not have a problem with government disincentives, such as as, as previously mentioned, getting rid of policies that encourage borrowing over savings, or even some sort of incentives might work. In my ideal world a huge chunk of Americans would reexamine their spending habits and cut back on their own. The change would come from the people and businesses and governments would adapt accordingly. That is probably a pipe dream though, so some change in government policies would probably be needed.
OK, here are a couple of questions that answering will help me understand things better. On a national scale, are there only two types of economies, one that relies heavily on imports and the other that relies heavily on exports? As countries become more interdependent on each other, I don’t think that being a self sufficient country is an option. We in America are consumer culture. If we collectively decided we wanted to change that, what would the alternative(s) be?
There is literally no alternative to consumerism. The entire function of the economy is to make things to consume, or to make things that make things to consume. You can do tricks to make yourself an exporting country, but the net result is that you are poorer. Take our relationship with China. We have a lot of valuable stuff from China, and they have a lot of paper from us promising valuable stuff in the future. Essentially, the Chinese have chosen to be poorer now in the hopes of being richer in the future.
In that sense, it is good. The problem is that if we waste the valuable stuff we get now, in the future we will have to have less valuable stuff in order to pay back our loans. But this is really a problem of borrowing and cheap credit, instead of having a consumer or import oriented economy.
No, economists don’t agree on that. “Spending” isn’t a clearly defined thing, and everything depends on your individual economic circumstances. If I “spend” money on my child’s education, that’s generally a good thing. That’s not some rare exception, and that’s just one aspect of “spending” that is uniquely unusual.
Generally speaking, more money going out than coming in is unsustainable in the long run, even if you can keep it up in the short run. Spending is simply taking the money you earn, and using it to purchase goods or services.
Right, but a country like the US isn’t a closed system. You can’t compare a nation state to an individual. While it’s true that an individual can’t sustain spending more than they bring in for very long, a country like the US has other options. For instance, due to the fact that our currency is the defacto world currency and reserve (things like oil are sold in dollars), we have a situation where the rest of the world is essentially floating our debt (by purchasing it, buying our government investment instruments, purchasing dollars, etc), which is good for countries like China and India because it means that we can then buy more goods and services from those countries as well. It’s not sustainable in the long run, but not because we buy more goods and services than we sell. We could sustain THAT for quite a long time (indefinitely perhaps), if we were wiser about how we spent our funds domestically. However, this influx of money has made us feel we can simply do everything, spend on anything (I’m talking about government here, not individuals, though the same holds true for them too, as the housing bubble showed).
That is the wall we’ll hit, IMHO, and it doesn’t really have that much to do with consumption, nor would cutting off consumption (in whatever way you want to try and do that) ‘fix’ the ‘problem’.
What is wrong with requiring foreign manufacturers to make their products in the USA?
It makes sense, and it would ease the trade deficit issues. Germany and japan have been requiring this for years-you cannot expect trade deficits (of the magnitude of ours with China) to go on forever.
For example: General Dynamics sells fighter planes to Japan-Japan specifies some percentage of local content-we have been doing that for years.
The Japanese and Germans already build a certain percentage of manufactured goods sold in the US using US workers in plants that are located in the US. What would be the point in forcing them to a specific percentage when they are already doing this (for economic reasons)??
There is only one ethical course for a lefty who is committed to egalitarian democracy, and that is to educate the people. It isn’t so much the consumerism that is at fault, it is what is being offered to be consumed. If we demand green energy, we will most likely have it. If we are willing to settle for loud, shiny crap, we will continue to have that. What we have now is a vast arena full of gumball machines. The gumballs come in a marvelous variety. Shiny gumballs, colorful gumballs, lolcatz gumballs, gumballs that vote vampire over werewolf. And if we will buy poisonous gumballs, they will sell us poisonous gumballs.
Legislation is only marginally effective. Our corporate insect overlords have lobbyists to water down legislation before it is passed and battalions of lawyers to find loopholes after. But if the people lead, the leaders will follow. We carry their balls around in our pockets, we need only reach in and squeeze. And its not the Republican Party we need to defeat, nor the Democrat, nor even the growing hegemony of the Libertarian juggernaut. Its the Apathy Party.