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Spend, yes, but not at future's expense

troxler
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By HOWARD TROXLER

© St. Petersburg Times,
published September 28, 2001


Should we, as consumers, be deliberately spending extra money to help the U.S. economy?

In some political and retail circles, spending is being portrayed as patriotic. General Motors drapes its showrooms in flags and asks us to "Keep America Rolling." Ford wants us "to help America move forward." Toys "R" Us wants us to stop by and let the kids color a U.S. flag, which is nice, although I bet they won't mind if you shop a little too.

All of this is well and good. It's an undisputed fact that consumer spending is the only thing that has kept us out of recession for the past year. What's more, our natural tendency to cut back our spending in uncertain times can, by itself, cause a recession.

Sometimes the economy goes bad because we are worried that it will.

However, before doing my civic duty and rushing off to Wally World, I wanted to know more. How much extra spending is supposed to do the trick? Are we consumers being asked to prop up the short-term economy against our own, long-term interests?

The first thing I learned is that nobody is kidding about how important the consumer is. If you picture the U.S. economy as a pie with 10 slices, seven of those slices represent spending for "personal consumption."

The rest of the pie is (1) "investment" spending, mostly by business, for new buildings, equipment and so on, (2) government spending, and (3) our net balance of trade. Since the third quarter of 2000, all of these pieces of the pie have been flat or shrinking -- all except consumer spending.

"That's what's been holding us up, sustaining the economy, keeping us from having an actual decline so far," David Denslow told me. He is a professor of economics at the University of Florida.

I asked Denslow: Does that mean that saving more is bad?

His answer was that in the long run, saving also has its benefits. If we save more, there is more money for banks to lend. Interest rates go down. The "investment" side of our economy is stimulated. Our trade deficit gets better.

(Oh, yeah -- there is one other good thing about saving money. YOU HAVE IT LATER WHEN YOU NEED IT. But that is not part of the calculation of those urging us to spend it right now "to help the economy.")

The problem is making a sudden change. You can't just take a national economy, 70 percent geared to consumer spending, and throw it into a different gear overnight.

As a layperson, I kept trying to get a handle on how much spending supposedly would prevent a recession. Some smart people guess something on the order of $100-billion.

You know those checks we just got from the IRS? They add up to $38-billion. Congress just rushed through an extra $40-billion in response to the terrorist attacks. Corporations and politicians hope we will provide the rest (the way I figure it, a few hundred bucks a head). Even so, the business-investment sector could drag us into recession anyway.

So I am a little wary of consumers being asked to take the plunge for corporate America, and well-paid executives who make many times their remaining employees' salary, who do not worry about their own kids' college funds or their retirement packages. It would be something to see a corresponding sacrifice in the area of executive compensation!

Even as business lays off workers and pulls back on its own investment in America, it coos reassuringly to consumers to open their wallets. In the name of "stimulating" the economy, selfish interests talk about further tax breaks for the wealthy and corporations -- but not in the payroll tax on the little guy.

The best I can figure is this: Don't stop spending out of some misplaced sense of sacrifice, or a general uneasy feeling. That truly will make things worse. If you were going to buy a refrigerator, then buy it. Go out to eat. Leave a nice tip. However, do not catch a tent revival fever from the corporate and political cheerleading and crack open the piggy bank, cash in the IRA or blow the inheritance. This might sound like everyday common sense, but somebody still needs to say it out loud.

-- You can reach Howard Troxler at (727) 893-8505 or at troxler@sptimes.com.

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