Consumers Ask – What Recovery?


So, a weak consumer confidence survey confirms what anyone with an ounce of sense and the ability to engage in social conversation with a broad swath of Americans could have told you months ago. A lot of people are hurting and those that aren’t know too many who are and are, therefore, terrified that they could be next in line.

Outside of New York and Washington, things are bleak even for those who are employed. Everyone is looking over their shoulders just to make sure that the ax isn’t poised above their neck. Supposedly secure occupations like teachers, cops and firemen don’t look so untouchable any longer. Cities and states that government workers were counting upon to come through with their retirement packages are teetering and just to make the potion more distasteful, new taxes, fees and surcharges are being piled onto already stretched budgets.

John Carney has a good post up about what went wrong or more appropriately why all the great thinkers got this recovery talk all wrong. Here’s a bit of what he has to say, but take a couple of minutes and read the whole post:

Why was it different this time? The problem this time is that we’re in what the Keynesians would call a “liquidity trap.” Consumers, having been savaged by the housing bubble and its consequences, continue to be fearful of the future. Government regulation is making consumer spending more difficult by increasing capitalization requirement for banks and squeezing consumer access to credit. Huge debt overhangs from the boom still have many people trying to pay down debts instead of engaging in new spending. To put it briefly, the supply of funds to fuel economic growth is still very low because cautious Americans do not have faith in the recovery.

Economic planners will describe the situation as an “excess liquidity preference” and recommend more government spending to push the economy toward higher employment. Unfortunately, unless we’re really lucky, much of this government spending will likely be long-term destructive because it will direct funds in the wrong directions because it isn’t subject to market discipline. In any case, the current political atmosphere seems particularly unwelcoming to additional deficit spending. So we’d better hunker down and get ourselves adjusted to an economy with a higher than historical liquidity preference.

Let me offer a couple of thoughts.

First, I’m becoming increasingly convinced that government statistics aren’t at all capturing the extent of the pain that has been inflicted on the general population. The unemployment numbers are only the tip of the iceberg and fail to reflect the destruction of professional careers as well as the vast number of individuals who are working at whatever is available in order to make it through to whatever better day might be coming.

At the same time, a large swath of the country looks at the orgy of spending we’ve embarked on in the name of stimulus and wonders who is benefiting. Their pockets are still empty and their prospects haven’t changed one whit. It shouldn’t be all that much of a surprise that as John says, “… current political atmosphere seems particularly unwelcoming to additional deficit spending.”

Today we have a sullen consumer who is unconvinced of a better future. Whether that consumer tomorrow will meekly accept a diminished economy due to liquidity preferences is another question entirely.

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