Consumers Must Be Focus of Recovery Efforts

Economy and jobs rebound can’t happen without increased consumer spending.


Consumer spending generates 70 percent of U.S. economic activity. Say what you like about the fall elections, the deficit, the size of government, the need for stimulus, tax rates and reforms, rising healthcare expenses, immigration, structural vs. cyclical unemployment, and the Federal Reserve. The U.S. economy ain't going nowhere unless consumers, especially the middle class, lead the charge.

Signpost with the words Recession and Recovery against a blue cloudy sky.

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Since World War II, the consumption-driven prowess of the U.S. economy has helped set America apart. We can argue about the costs as well as benefits of an economic system that is so driven by material consumption. But in terms of economic output, wealth creation, and low levels of unemployment, consumption has been the bomb.

All of which makes it a mystery why business and government leaders have talked very little about the failure of consumer spending to recover since the Great Recession. Perhaps the weakness of 70 percent of America's economic engine is so well understood that we just naturally assume it underlies much of what ails us. But I don't think so.

Everyone on Main Street knows that consumers will not recover until the housing industry regains its footing. This means dealing with the economic drain of depressed home values and underwater home mortgages that are dimming, if not destroying, the future for millions of Americans. We have bailed out Wall Street and the banks. And we have passed extensive financial reform laws whose effectiveness and rationale remain murky at best.

But, and pardon my French here, we have done squat for consumers. Safety-net programs did provide extended jobless benefits, but they're expiring. Social Security payroll taxes have been cut for the past two years, but this amounts to at most $120 billion a year in benefits. And they are set to expire at the end of this year.

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We have done nearly nothing to deal with the corrosive financial and emotional collapse of residential housing. Yes, there are signs five years after the fact that a modest recovery may be on the way. This simply confirms a trajectory that promises at least a decade of depressed consumer spending, high unemployment, and immeasurable lost human potential. It is impossible not to conclude that our most powerful leaders and our best and brightest minds have decided to accept a laissez-faire housing solution. What are they thinking?

Boosting consumer spending is not a discussion that fits well with the ruling ideology of either political party. Traditional journalism argues for a "balanced" analysis that finds equal fault with both sides. But being as analytical as I can, the fault here lies much, much more with the Republican base. It apparently believes smaller government must be achieved at all costs, even if it involves destruction of the middle class and permanent enshrinement of wealthy Americans as a protected species.

For Republicans and Tea Party types, it's an uncomfortably short hop from boosting consumer spending to government stimulus programs. Conservatives talk about how cutting government spending and other austerity measures would restore business confidence. But how does this put more money in consumer pockets and support more spending?

It is debatable if austerity and reduced government regulation would actually bolster business confidence. But even if it did, businesses don't hire on just the hope of a jump in new orders. Confidence won't translate into investment and job creation without customer demand.

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The United Kingdom and European Community are traveling down Austerity Road. The results have been nothing short of disastrous. Economic growth has fallen, not grown, and the contraction has sapped not only consumers, but Europe's heavily leveraged financial system. Without growth, it can't survive in its present form.

Democrats have been on the defensive for years and still have not developed the ideological nastiness to effectively counter the Republicans. They are too often reduced to being defenders of an untenable status quo. They support escalating healthcare and entitlements spending that is bankrupting the nation. They call for tax increases on the wealthy that would produce a righteous glow but raise only modest amounts of money. When it comes to true tax reform, they are as badly comprised with special-interest obligations as the other guys.

Meanwhile, consumers have no option but to suck it up. They are forced to spend less, save less, and try to pare debts where they can. They don't have the luxury of running deficits and have to protect themselves financially. Ironically, the more prudent they are, the more it retards spending and economic growth in the short run. Policies to support greater consumer spending would have lots of flaws, but they would be far preferable to what's not happening today.