Paragraphs like these are why Caroline Baum is an economic affairs journalist and I’m just a lonely gadfly blogger, from her article on Bloomberg as titled above:
The hoopla over Thanksgiving weekend sales, disseminated
via TV, print and electronic media, surely sets the U.S. apart
from other Western nations. And don’t get me started on that
season-of-giving malarkey. The Christmas-shopping bonanza long
ago became divorced from any religious or spiritual significance
the holiday may have.
It’s not clear that opening stores three, six or 12 hours
earlier than normal on Thanksgiving weekend results in stronger
holiday sales, either for individual stores or for retailers
overall. Households on limited budgets determine how much they
will allocate to gifts for friends and family. Where and when
they do their shopping is secondary.
Besides, there is something fundamentally wrong with a
culture that promotes spending as the key to health and wealth.
A multidecade borrowing-and-spending binge whittled the U.S.
savings rate from an average of 9.6 percent in the 1970s, to 8.6
percent in the 1980s, to 5.5 percent in the 1990s, to 3.3
percent in the 2000s. At one point during the housing bubble,
the savings rate approached zero.
I agree with Baum that expanding consumption is no way to strike a sustainable economic foundation, if for slightly different reasons than the ones she cites in the article (Baum explains that consumption comes at the expense of expanded investment). How much of all the trinkets and baubles US consumers will buy over the holidays, or any time, are likely to be produced in the US? For that matter, how much of the fuel consumers will burn on their way to the inland automobile seas known as the shopping mall parking lot is produced in the US? It wouldn’t matter that we buy things manufactured or produced overseas–so long as we also sell things manufactured or produced here to pay for them. But we don’t. All we do is trade paper promises for real things.
Just as China’s mercantilist model is unsustainable because it depends on selling its wares to trading partners with whom it competes for markets (detailed in the previous post), the US model of borrowing to purchase China’s wares because China, et al, has driven domestic US employment to the doldrums, is equally unsustainable.
The last thing anyone in the US should be rejoicing is increased US consumer spending. First must come increased consumer income due to labor market expansion (tied to investment), then consumption can increase. All we’re now doing is digger ourselves a deeper hole of trade deficits and debt, which the Chinese are happily funding. This can’t continue indefinitely, and anything that can’t continue won’t continue. It’s not clear which economic system will teeter and collapse first this time (it was the US that collapsed first most recently), but it doesn’t matter. As before, both will collapse together. China has massive savings to fall back on. The US has mountains of debt, but also years of uninterrupted asset accumulations. Chinese workers will likely suffer most, which is unfortunate, because it is Chinese workers, not unemployed Americans, that need to expand consumption in order to set this arrangement on a path of sustainability.