Wednesday, May 16, 2012

Time to Reinvent the Wheel

Consumer Spending Model for Growth Simply Doesn't Work

We've all heard for years that consumer spending accounts for about 2/3 of GDP, and although it has traditionally been a solid driver of the economy, the time for change is indeed upon us.  I look at it this way. Picture you, the American consumer as a sponge, and let's make water debt. Now, as a consumer, your ability to absorb debt cannot last indefinitely. At some point the sponge needs to be squeezed and the water needs to be removed. Squeezing the sponge regularly to keep it dry and clean is like paying your bills on time.  You remove the burden of debt  from your life just as you would  moisture from the sponge. Those who fail to squeeze their sponge regularly carry around a lot of extra water (debt), get waterlogged, begin to deteriorate, and eventually lose their ability to absorb. At this point, the consumer can usually declare bankruptcy and get  issued a new credit card with which he can start accruing more debt right away, which he will eventually be unable to absorb again. Thus the cycle of creating more debt is ensured, as long as the "wheel" of consumer spending continues to turn.  

Well folks, I hate to be the bearer of bad news, but the ''wheel" is broken and it needs reinventing. Not that I'm advocating we don't go shopping; we all need food, water, and shelter to live, but it's the conspicuous over consumption of products and services that we really don't need that is driving us deeper into the abyss of debt.  And there seems to be no end in sight. So, here's the challenge. How do we move away from a consumer based society when that's all we've ever known?

A tall order to be sure. I haven't got the answer, I wish I did. And apparently, none of the geniuses at any of those Washington "think tanks" have either. Nobody from Harvard or Yale has been able to do much about it as well. So, if any of you reading have got any ideas on how to fix things, I'd sure like to hear from you. In the meantime, squeeze your sponge regularly. You never know when the next tidal wave is coming.  


  1. I guess that's where the expression/idea of sponging off of someone originated.

  2. No, No, No are re-inventing the wheel..the "consumer spending" that fuels a healthy economy is not synonymous with consumer borrowing...two very different things with very differebnt impacts on an economy.The key is to 1. create jobs, 2. put paychecks in the hands of consumers, 3. watch them spend the portions of their paychecks not committed to expenses and saving, i.e. their discretionary income 4 factories run out of inventory and make even more widgets, 5 the factories hire more workers 6. the workers spend..etc...a glorious growth cycle...borrowing leads to short term spending then the proverbial brakes getting slammed down on the spending wheels....get it?