Thursday, July 14, 2011

Why Are Economists Confused? Americans Aren’t

If you look at statements made by Ben Bernanke over the last several years on the US economic outlook, they are not a model of consistency, let alone confidence building.  Indeed, they reflect an economy that appears to be stopping and starting – subject to the vagaries of the world not driving the world’s economy.

Many other economists are similarly uncertain as to why our economy is in such trouble.  Real-world Americans, however, have no such confusion.

In April of 2010, the Federal Reserve Chairman said the economy had “staying power.” In August of 2010, Bernanke said, “The economy remains vulnerable to unexpected developments.”  Early last month he stated: “U.S. economic growth so far this year looks to have been somewhat slower than expected.”  Later in the month, he let us know that “We don’t have a precise read on why this slower pace of growth is persisting.”

On the other hand, we hear stories of banks and corporations flush with cash.  For his part, Obama appears focused on luxurious corporate jets and the Left tells us (falsely) that taxes are at the lowest they have been in 50 years.

So why is the economy underperforming to their great confusion or surprise?

There are many reasons – but one central one.  First, among the many reasons, are businesses’ fears of the costs of doing business in the future, including the costs of Obamacare. Adding to those fears are the costs of regulations (Obama’s and state regulators) and, of course, higher taxes.  Also among the many reasons are the national debt and the debt of our states.  Those amounts are so far past rationality and are paired with future entitlement requirements that are way beyond unsustainable.  Combined, they produce economic fear, which translates quickly into economic caution which equals less economic activity.

No one is more fearful, however, than the average American consumer. The broader unemployment index is above 16%.  The more narrow measure has hovered around or above 9% for a record period of time – years in fact.  That takes a heavy toll on an economy based on consumers – a 70% consumer economy at that.

Reading from the 2009 Consumer Expenditure Survey, by the U.S. Bureau of Labor Statistics, we find that:
Spending on housing and transportation fell 1.3 percent and 11.0 percent, respectively, contributing to the overall drop in spending in 2009. Healthcare expenditures rose 5.0 percent, the only increase among the major components of spending. Among the other major components, food dropped 1.1 percent, apparel fell 4.2 percent, entertainment dropped 5.0 percent, and personal insurance and pensions fell 2.4 percent.
Get the picture?  Discretionary spending plummeted while healthcare, never a desired expenditure, took a bigger bite out of people’s budgets.  Since then, consumer spending has been as inconsistent as the economy or, more accurately, the inconsistent consumer spending has produced an inconsistent economy.  Historically high unemployment will do that sort of thing.  So too will the $6 trillion loss in homeowner equity over the last 5 years.

In plain truth, the American consumers, the focal point of our economy, do not have the money or savings or wealth they had before. They have much less and cannot sustain our economy right now let alone afford to bailout government.  They are fearful – as consumer confidence surveys confirm – including a two-year low recorded, on July, 14, 2011, by Rasmussen for their Consumer Index .  Threats of tax hikes, Obamacare, debt and the like, i.e. more government, only make matters worse.

The only thing that will help is if they have confidence that tomorrow will be better for them economically than today. Government programs simply can’t provide that; they never have – and that shouldn’t be confusing to anyone.

Big Government