In response to my recent “Spending Hiatus” post, a dear friend with an inquiring mind wanted to know:
“What happens to the US economy if the consumer stops spending?”
Smart question. See, for the past 15 plus years, the US consumer has been an out-sized driver of GDP. Consumer spending in the US topped 70% of GDP, as compared to 50% to 60% in other developed countries. The only way we Americans were able to consume like such crazy folk was by spending more than we earned, year after year. It started off slowly in the late 1980s/early 1990s… and reached a frenzied crescendo this decade when the savings rate went negative. With the recession causing consumer spending to slow down, we are seeing the obvious near term consequence – domestic economic growth has slowed down as well.
However, if we thread that proverbial needle with appropriate, targeted government intervention – combined with heightened personal responsibility – something magical could happen: It is highly possible that we will re-emerge in the next five or so years with a much more sustainable, three-legged stool supporting our economic growth. In other words, our domestic GDP will be driven by a more healthy balance of consumer, business, and government spending. Thus, when it comes to finding something positive to grasp on to as our nation goes through this painful period of economic detox keep this in mind:
Our economy is basically like someone who kept their energy level high for years through excessive use of caffeine & sugar… and is now cutting back and trying instead to drive their energy level through sleep, exercise, and nutrition. It will work, but only after going through the one-two punch of an initial, painful withdrawal period followed by a lag as the effects of this new lifestyle choice take their time to kick in.
As you read dismal economic headlines, take heart and remind yourself of the wisdom of the ages… good things often come to those who wait.