Consumer spending

Discussion in 'Economics' started by Susannah, Feb 20, 2009.

  1. Consumer spending is a huge part of our economy and I keep reading about it again and again.

    I don't mean this to sound stupid, but what else would an economy be based on? If it's not your consumers spending, then it would be you making exports for another country's consumers, right? What other kind of spending would be more healthy - it seems government spending isn't really healthy since the consumers ultimately pay for it anyway through taxes. If corporations spent money amongst themselves and that made up more than the consumer spending, it seems like that wouldn't work either because then the money put into the end product would be more than the money charged for it.

    If an economy is by definition measured by how much money gets spent, and the end person doing the spending is defined to be a consumer, then I don't see how an economy isn't by definition mostly consumer spending. The only choices really are if it's your country's consumers or another country's consumers.

    Is there something I'm just missing in my thinking?
  2. harkm


  3. Now you have me wondering. There are 5 people playing poker. Are they spending money? What are they producing? A lot of money is changing hands. Players are making side bets with each other off the table outside of the game being played on the table. This probably was our economy. The real assets were shuffled out of a 6 decks, no one knew.
  4. chartman


    Consumer spending is the spoke that keeps the economy wheel turning. But our politicians have killed the middle class. Without money to spend there is no one to purchase goods and services.

    The economic stimulus plans are faulty by not attacking the core problems of the economy. Both Bush and Obama meant to offer plans to help simulate a recovery. But all they are doing is adding trillions to our national debt.

    We must restore custumer spending by supporting the middle class and rebuilding our industry base. By rephrasing a 1994 campaign slogan, "It's the jobs, stupid". Here is a partial quote from an article released recently:

    WASHINGTON (AP) -- Fears are mounting about losing a job, not having enough money to pay the bills and evaporating retirement accounts, according to an Associated Press-GfK poll released Wednesday. Nearly half of those surveyed said they worry about becoming unemployed -- almost double last year's number.

    The poll also found that in the past month, public support has dipped slightly for the $787 billion package of tax cuts and government spending that President Barack Obama signed into law this week on the promise that it will save or create 3.5 million jobs and re-ignite the troubled economy.

    "I lost a job myself," said Edd Winkler, 40, a married attorney and father of two in Grand Rapids, Mich. "There were just too many attorneys for the amount of work we had coming in to the firm at that time." Winkler has opened his own practice, and says most of his work involves bankruptcies.

    "I know a lot of other people who have lost jobs," he added.

    Winkler said he wasn't confident the program would create jobs, and that those it does create will be low-paying.

    "Until we can somehow keep jobs here and create actual real paying jobs, not Wal-Mart greeter jobs, those things won't work," he said. (end of article quote)

    What has happen to our nation is the loss of the middle class and their consumer spending. Our stupid leaders (Clinton, Gore, Bush and every politician that has voted for and supported so-called 'free trade') has killed our industrial base. A large portion of our GNP is consumer spending and people are afraid to spend due to either being unemployed, their hours being reduced or the possibility of being laid off.

    People working for minimum wage cannot support the economy. They need financial assistance themselves. There are not enough very wealthy people and they spend too low of a percentage of their disposable income to have an effect on the GNP. We need the middle class and their spending.

    Ross Perot tried to warned the voters but they would not listen. Now we have to reap what we have sown. It was well known that by outsourcing our jobs that we would become a low paying service workforce without sufficient income to support the standard of living Americans have come to expect.

    It is foolish to believe that we can build up the standard of living of third world countries at the expense of our economy without lowering our standard of living. To create jobs we need to cancel our participation in all of the trade agreements and impose restrictions on all goods and services that we can produce and provide in our country. Such a policy would eliminate unemployment, under-employment and restore our industry base and middle class without government spending.

    We are on a fast track of becoming a nation of a minority of very rich and a large majority of very poor with no middle class. If we do not change our economic policy the once most powerful economy will become a third world economy with all of the problems associated with disillusion. It is time for the silent majority to take a stand before we have a revolution. People today are not like those in the Great Depression that accepted 25% unemployment and stood in bread lines. It's a different world.
  5. People today are not like those in the Great Depression that accepted 25% unemployment and stood in bread lines. It's a different world.

    Good point. No one is going to stand in bread lines, how passé. Obama needs to deliver the bread to the house. Yo, like How do they expect me to get to the bread line, walk?

    Face it, You can look for a job, collect unemployement benes without leaving your computer screen, direct deposit the check and shop on line.
  6. Your question seems sincere (and I'm kinda bored), so I’ll hammer out a quick & elementary primer on the components of our GDP:

    In the classical sense, the other options besides consumption are government purchases, net exports and (my favorite) investment.

    So, the govt could buy itself lots of missiles, that would be something that increased the economy, as people become gainfully busy procuring/producing the raw materials, engineering the damn things, hiring people to build & inspect them, plus all the ancillary stuff like accountants to do their payroll, attorneys to review contracts and sue other competing entities that the govt is buying missiles from, etc. etc. etc. all this promotes growth in the economy.

    If the government is sitting on a great big pile of valuable currency it is extremely stimulative to the economy for them to spend some of it (on practically anything).

    If they don't have any money and have to borrow it at a price (interest), or worse yet just make up more money, then things like missiles, new toilet seats in the post office and bridges to places that no-one ever goes don't make much sense and just make the money that everyone else has saved up worth less than it was before.

    HOWEVER! If they borrow cheaply and spend the money on things that provide more return than they are paying in interest it can be very worthwhile. Things like making people smarter and more efficient (or enabling otherwise disenfranchised people to contribute valuably) can increase future tax revenue streams and more than offset the cost of the initial borrowing. Also things like NEW infrastructure in places where it unlocks value, or audacious science projects that (often through surprising tangential discoveries and inventions) propel our economy forward. Everything in this paragraph would qualify as government investment (although in the general category of government purchases).

    Private investment is sort of the same as above, just supposedly more efficient. Commodity companies might invest in trying to develop really high tech ways of producing or recovering natural resources (say natural gas, or soybeans, or whatever) another example might be a telecom company spending money on building a massive network of cellular phone towers (or 500 satellites, whatever) in order to make an entirely new concept (instant information flow to anywhere) available to the participants in the economy, who each trade some of their money for the right to use this large network to their liking or benefit. The money paid by the users will more than offset the cost of building the cell tower network, profiting the telecom company. Very similar to government investment, except that private companies do it.

    The theory is that private investment is more efficient/less wasteful than govt investment because of the profit motivation of the company doing the investing. Even if the govt just hires the profit motivated company to do the thing they want, there are still always administrative costs and all kinds of other hidden agendas that can be costly. Sometimes socially beneficial investment (like creating "unfair" programs that keep hoards of unfortunate, disaffected, lazy, incompetent, insane or stupid people from rioting and/or otherwise making it less palatable for smart, ambitious and hard working people to perform valuable activity) doesn't occur in the private arena without a push from the government (or at all). Also, some projects are beyond the scale achievable by the private sector and couldn’t be financed without a govt stake. Hence, the govt should sometimes engage in investment even if it isn't the most economic or efficient.

    The next component in the economy is net exports, not only of consumer goods, but also of investment type stuff like new oil drilling techniques, fancy banking or money management techniques, etc. If you import more stuff than you export, then your net exports in negative, and decreases your economy (and transfers supposedly valuable money to other, outside economies). Here things like the types of things im- and exported can matter for the long run health of the economy; e.g. importing 100% of the required food, and exporting only interpretive dancing lessons could be considered risky for an economy, even if the monetary exchange is currently in balance. in the US, the trade deficit as measured is rather large (unfavorable to our economy), but I don't think it captures many of our "service" exports, which are huge.

    And the last, and in the us the largest by far, is Consumption, which you point out in your post. Things like spending your money on expensive coffee, just to piss it out an hour later, is counted as part of the economy (woo hoo!!!), but doesn't have any anticipated future revenue stream to you. Here it also matters to the economy where the stuff comes from that you consume. This then gets us back to the net exports idea, which I won't go into.

    Anyway, this turned out a little longer than I'd expected. Hope it helps prompt a thought or two. Maybe someone will add cliff's notes...
  7. ^ oh, wanted to add something about buying missiles without having any money. They can have an excellent Return On Investment if their purpose is to literally expand the economy by annexing other economies, either by force or threat (way greater ROI if by threat). While a fairly sure-fire way to grow the economy, this method has fallen somewhat into disrepute as of late.
  8. chartman


    Again, to repeat, it is jobs, stupid!!! We must put people back to work at good paying jobs to increase consumer spending. Our government must put America first by restoring our industry base. Too many college graduates, those fortunate enough to find employment, are underemployed at jobs paying a few pennies above minimum wage. Good paying jobs supports the government at all levels by more taxes and support the economy by increased consumer spending. It's not brain surgery. Just common sense which we are lacking in our political leaders. People with decent paying jobs can buy new cars and pay their mortgages. The economical mess our nation is currently in didn't happen overnight. It has been a slow process over the past twenty plus years brought on by the free-trade policies causing outsourcing of our industry base and the middle class jobs.
  9. bbqbbq


    The ability to create cheap labour out of oil creates wealth, once oil and other energy runs out, standard of living will go way, way below what people we're used too.

    Keep in mind until 200 years ago slavery was the primary source of cheap labor.
  10. Thanks for the well written and thought out post. Those are hard to come by around here.
    #10     Feb 21, 2009