GN Commentary: February 3, 2009 - Economic Consumption

Early in the last century the word "consumption" had a different meaning—it referred to a deadly disease. Perhaps it still does.

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Video Transcript

Have you decided how to spend your next stimulus check?  Government leaders from both sides of the aisle have promised some kind of economic stimulus package for the American consumer, but they're sure hoping we won't use it the way we did the last one.  When the Bush stimulus checks arrived, most people used them to pay off some of their rising debts instead of spending more.

Why should paying down your debts be a bad thing?  Normally, it wouldn't, but we're living in strange times.  Some have even wondered if we're on the brink of another Great Depression.  Actually, it may be much more serious than that.

Much of the problem during the Great Depression was that America had an amazing capacity for industrial production but no one had the funds to buy our goods.  Global markets were not developed and Americans had lost much of their money in the banking and stock market collapse.  Historians recognize that Franklin Roosevelt's New Deal government work projects actually did little to address the fundamental problems.  The economy made no measurable improvement until World War II began and the government was forced to become the number one consumer of our industrial production.

Today's economy is much different.  Industrial production now takes place overseas, and our economy is built on repackaging, reselling and consuming what other nations produce.  Our economy depends upon continuous consumption.  If Americans don't spend, the economy collapses, and as consumer debt rises, people quit spending.

The proposed solution is to create an unholy economic trinity.  Business tells us we should want more.  Banking and credit companies tell us we can have it now even if we don't have any money.  And government tells us not to worry; they'll give us more money.  If this solution produces anything positive, it will only temporarily reinflate the economic bubble, while the fundamental problems still defy solution.

Early in the last century the word "consumption" had a different meaning—it referred to a deadly disease.  Perhaps it still does.

For GN Magazine, I'm David Johnson.