OK, maybe we need to define consumption. You said, >>If they cut their spending by about 4% on the average, the US goes into severe recession.<<
Then you said,
>>Consumption is the most likely thing to decline first, given the extent of consumer indebtedness, the lack of savings in the last few years, and the high consumer satiation level.<<
>>extent of consumer indebtedness<<
I assume that by this you mean that "the consumer" - the aggregate of all US consumers, or maybe all consumers anywhere in the world that consume US output, or world output in the US, it's not clear - has been living beyond his/her means, and has "maxed out" debt in the sense of, say, reaching the limit on credit cards. Not able to pay them down, either. Assumption that consumption has been financed by debt, and there's no way to take on more debt.
>>the lack of savings in the last few years<<
I assume that by this you mean, again, that "the consumer" has been living beyond his/her means, and that an alternative method of paying for consumption beyond one's income is to dip into savings, but there are no savings.
>>the high consumer satiation level<<
I assume that by this you mean that whether or not the consumer actually lived beyond his/her means, he/she has all the durable goods he/she needs/wants at the present time.
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So you assert that this is more than a simple inventory correction/period of creative destruction.
It's not at all uncommon for a manufacturer to make more of something than he/she can sell. It's very hard for any manufacturer to know in advance how many of something he/she will actually sell, and it's good business to make things in advance of demand, otherwise the consumer will switch to another good which is available rather than waiting. It's foolish to make far more of something than he/she can sell, but sometimes information is imperfect.
This is part of what is termed "the business cycle." Sometimes the business cycle for many companies coincide - because instead of getting/listening to their information from the consumer, companies may be getting their information from each other, I suppose. Everyone at the Tower Club becomes irrationally exuberant about the news that Cisco opening up a new facility in town, must be a boom coming, better make more widgets.
So the widgets pile up, and the manufacturer cuts prices, maybe has to junk them - that's not a failure of consumption, that's over-production. Poor information.
Most consumers who take on debt think they can pay it off. Maybe true, maybe poor information. Depends on the individual consumer, although there is an element of consumers getting their irrational exuberance from each other, so all taking on too much debt at the same time.
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Maybe consumers are cutting consumption now because they think prices are going to keep coming down. We all have a tendency to generalize from our own experience, so that's my generalization.
I also note that everything I see in stores these days seems to be made in China. Not sure who pays J6P's salary these days. Maybe Ross Perot and Pat Buchanan weren't so dumb? (Sorry, Marcos.)
That "giant sucking sound" Ross Perot talked about was US jobs going, well, outside the US.
Or maybe El Mat is right. Those US jobs are being done by foreigners working for US companies set up in foreign countries, and some of that money comes back here to trickle down into the economy. Maybe we don't need manufacturing jobs in the US, maybe all we need are service jobs. It seems strange to me, BWDIK?
I can't get over the feeling that we've lost an essential element of our economy by losing those jobs, and that, more than anything else, will doom us - forget the Nasdaq bubble, forget the debt bubble. What kind of jobs are our children going to have? Flipping burgers and changing oil and cutting hair. |
