Leading economists have a one-stop solution for just about everything: stimulate consumer spending.
When the price of oil hit $150 a barrel, the first major alarm sounded. Something was wrong. Now we have a clearer idea of what it was.
To make a long story short, leading economists have a one-stop solution for just about everything: stimulate consumer spending. But $150 oil warned us: continue down that road and you will run out of gas. There isn't enough oil in the world to allow US-style consumption for everyone.
Two weeks ago, Dubai gave us another wake-up call. Thought to be risk- free, since it was implicitly backed by all the oil in the Middle East, Dubai World nevertheless stopped paying its debts. And last week yet another bell banged our eyes open. Greece announced first that it would not try to reduce its deficits... then, that it would. Hearing the news, the financial world rolled over and went back to sleep. But The Wall Street Journal offered a hint of trouble to come: “Markets force Greek promise to slash deficit,” said its page one headline.
If markets could force the Greeks to trim their deficit - about 13% of GDP... not far from the US level – could they not force Britain and America too? Coming right to the point, the fixers face not just one crisis, but many. They have a growth model that no longer works. They have aging populations and social welfare obligations that can't be met. They have limits on available resources, including the most basic ones – land, water, and energy. They have a money system headed for a crack-up, and an economic theory that was only effective when it wasn't necessary. Now that it is needed, the Keynesian fix is useless. If a recovery depends on borrowed money, what do you do when lenders won't give you any?
But let us backtrack to a smaller insight. Then we will stretch for a bigger one. Americans are supposed to be insatiable shoppers. For at least three decades, the world counted on it. It was the growth model for almost all the Asian manufacturing economies... and for resource producers everywhere. But as we approach the biggest shopping season of the year, a survey of consumers signals an earthquake. Americans plan to spend an average of 15% less during this holiday season than the…
