A recent article by Jeannine Aversa of Associated Press
outlines in clear black and white terms the reason the economy isn’t exactly bouncing back with alacrity.
Simply put, people aren’t buying stuff.
Roughly two-thirds of last quarter's GDP growth came from a burst of manufacturing — but not because consumer demand was especially strong. In fact, consumer spending weakened at the end of the year, even more than the government first thought.... They (consumers) increased their spending at a pace of just 1.7 percent. That was weaker than first thought and down from a 2.8 percent growth rate in the third quarter.
More below the fold.
Most observers are clear on the link between slow increases in consumer spending (around 3 percent in coming quarters) and a sluggish economic recovery.
In normal times, such growth would be considered respectable. But the nation is emerging from the worst recession since the 1930s. Sizzling growth in the 5 percent range would be needed for an entire year to drive down the unemployment rate, now 9.7 percent, by just 1 percentage point.
This analysis is fine as far as it goes. However, where the AP article (and virtually all other articles I have read) fall down, is that they misidentify the reason why people aren’t buying stuff.
Consumer confidence took an unexpected dive in February
While it is arguably true that people’s buying habits are affected by their confidence in things like, oh say, the security of their job, in this case I think the reason consumers aren’t buying stuff has less to do with to do with their perception of the direction our economy is taking.
The reason consumers aren’t buying stuff is because they don’t have any money to buy stuff with.
If you are living from pay check to pay check – as many of my friends are – if you are having trouble paying the rent, buying food, and affording medical care, the reason you are not running out and buying a new sofa or washer dryer has nothing to do with your confidence in the economy. It has everything to do with the fact that your bank balance reads zero.
If consumer spending is the key to economic recovery and if people aren’t buying because they have no money to spend, the answer seems pretty simple: Put money in people’s pockets. The New Deal did this pretty effectively by creating jobs through government programs. People went back to work. Their salaries were used to buy things thus pumping money back into the economy and stimulating production.
Personally, I think our economy needs an even sharper jolt than that. I’m not talking about tax breaks or credits to encourage hiring. I’m talking about money, put directly into the pockets of people who will spend it.
How about this for a novel idea? Why not just give everyone in the country $100?
One hundred smackers to every man woman and child. What’s that you say? 30 billion dollars is too much money? We can’t afford it? What about the 700 billion of Tarp money that went to the banks – with no strings attached? What about the hundreds of billions wasted on wars overseas – most of which isn’t even in the budget? The trillions we spend on defense and bank bailouts are the equivalent of applying leeches to the body of a man who needs a transfusion. If we really want to help the economy, why not inject a pint of plasma directly into our economy’s bloodstream by simply giving cash to people who will spend it?
If that’s too socialistic for you, let’s refine the idea. Give the $100 out in the form of vouchers that can only be redeemed for new retail items that have been manufactured in the United States.
This is not simply a gift. This is emergency treatment. Like a patient whose heart has stopped needs a defibrillator to jar him back to life, an emergency jolt of cash could jump start our economy like nobody’s business. Instead of giving gifts to banks who turn around and pass out the largess to executives and stock holders who don’t need it, why not give the money directly to consumers who will buy stuff, create a need for new production, and stimulate new job growth?
Think about it. People benefit because they get new stuff; manufacturers benefit because they get to make more stuff; retailers benefit because they get to sell more stuff; and best of all, the economy benefits from increased production, higher tax revenue and lower unemployment.
It’s a win for everybody!
Please, someone tell me why this wouldn’t work?
Final Note: I know this isn't a new idea, but I really want to hear someone give me a good rebuttal why it wouldn't help the mess we're in.