Thursday, September 24, 2009

American Consumers and the Economy's Future

The Times has a pretty interesting round table of academics talking about what the world economy is going to do with American consumers not spending. It's not pretty. Of course, it was all a chimera anyway because this spending was fueled by unsustainable debt and an absurd housing bubble. I do want to focus on a couple of the individual participants in the round table though. A few of them blame China for not spending or for keeping the yuan so devalued. I say, whatever. It's not as if the U.S. hasn't gamed the situation in the past for their advantage. I have a hard time buying this line of reasoning; moreover, it doesn't get us anywhere.

Lawrence Glickman, a historian, rightfully suggests that America's relationship with thrift is pretty tenuous at best. We start buying as soon as we can and we pretty much always have. I think this is true. If American history tells us anything about this crisis, it's that we will start shopping the second we feel stable in our jobs.

However, I'm not sure this isn't a different kind of crisis than any before in American history. I think Glickman is correct, but I'm not sure we will see the same result. That's not because of any change in Americans' attitude, quite the contrary. Rather, let me quote the sociologist Juliet Schor:

But relying on a consumer boom is foolhardly for a much deeper reason. Our problem is not a shortage of walk-in closets, cell phones or calories. We’re up against climate de-stabilization, and we can no longer deny that business-as-usual growth has brought us to the brink of catastrophe. We have about five years to get serious about a low-carbon economy, and start expeditiously transforming our dirty energy, food and transport systems. In standard economic terms, what this means is that we need to ramp up investment, rather than consumption.

Right, and on top of the environmental catastrophe we face are peak resource issues. Even if the economy does make a full recovery, the fact that we are running out of oil and any number of important minerals means that commodity prices will rise right along with the recovery. It seems pretty self-evident that scarcity is going to undermine any recovery. Perhaps not immediately, but within a few years. I'm not an economist, but it seems to me that most economists and financiers have not come up with useful answers to this crisis. Certainly in this round table (a limited sample size if there ever was one) the historian and the sociologist make a heck of a lot more sense than the economists do.

What we do about this intractable problem, I have no idea.