Consumption Economics

I'm not at all convinced that Americans will learn that constantly spending more than you make (and not saving, either) is unsustainable, but the bursting of economic bubbles and the difficult economic times ahead may help.

• This is the first occasion when declines in both quarters will have exceeded 3 percent. The current consumption plunge is without precedent in the modern era.
• Consumers are now abandoning the asset-dependent spending and saving strategies they embraced during the bubbles of the past dozen years and moving back to more prudent income-based lifestyles. This is a painful but necessary adjustment.

So many people bet on their houses continuing to appreciate that they stopped saving altogether and pulled out equity.

• "...net equity extractions from United States" tripled between 2000 and 2006. "This newfound source of purchasing power was a key prop to the American consumption binge."

What need is less emphasis on getting stuff and more on planning ahead.

• The United States needs a very different set of policies to cope with its post-bubble economy. It would be a serious mistake to enact tax cuts aimed at increasing already excessive consumption. Americans need to save. They don’t need another flat-screen TV made in China.

Simplify. Live within your means.
- posted by john @ 12:11 PM