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Can the US economy maintain its recent growth with consumer spending accounting for 70% of GDP?
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Posted on
Jan. 18, 2011
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- Mike R
I couldnt agree with Rick more, and couldn't have said it better. Our economy is structurally broken, and as such NOTHING is sustainable. We are built to consume, not to create, and that is a really bad imbalance, not just for our own economy, but for those parts of the world that produce FOR us.
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This question should actually be in several parts. The fact that consumer spending is about 70% of GDP is somewhat irrevelant to whether or not we can maintain our recent growth. In fact, it can be argued that consumer spending is far to high for our own good, that the US savings rate is far below optimum and the US would be a lot better off, and more competitive, if it invested more of its GDP rather than spending it on more things we don't really need, but are told on TV and elsewhere that we do.
Our sickness is best measured by the balance of trade which consistantly year after year is net imports over exports. Whether cars, toys, clothing or electronics, we import cheap overseas goods and own more than we need. A higher savings rate would encourage lower interest rates to business consistantly over time and force business to seek overseas markets which would help our balance of trade. Americans would be less dependant on government aid when between jobs if there were savings, but most Americans live paycheck to paycheck.
In my humble opinion, the US would be better off resuming growth from creating an export economy. This forces competitiveness from our business in a world economy and US consumers learn frugality pays through improved security. There are many third world economies where overabundance of consumer goods is not an issue and can buy from us if we provide products they want and afford. This would create sustainable growth in the US rather than the bloated growth we experience from boom to bust. Switching our economy to this kind of export driven one is going to take time, but is essential to resuming sustained growth.
In the mean time, I urge the government to do what they are not doing, that is to spend on public works to stimulate jobs in the US and have lasting benefits in improved roads and public infrastructure. I regret the recent tax cut in FICA taxes as a tax giveaway that will be hard in a year to recover, and for which in one year we will be hard pressed to see what we got for the tax giveup.