Leftist Boddhisatva

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Monday, November 28, 2005

The New New Economy


The consumer model that has been driving the American economy since the 1950s is no longer working. Under the consumer model, consumption is encouraged and savings are discouraged, and as people spend more money than they need to, that money goes into the economy and generates more jobs. There are several factors which are undermining the consumer model.

1) Less discretionary income. Increased housing costs and increased transportation costs, as a percentage of income, have gone up.

2) A greater debt burden, as consumers have increased borrowing in order to maintain their lifestyles. The flip side of this is the greater penalties for bankruptcy.

3) Loss of manufacturing jobs. One of the engines of the consumer model was that by increasing consumption, there was an increase in the amount of manufacturing, resulting in increased number of jobs. Now those manufacturing jobs are all off-shore, which is great if you live in [take your pick], but not so great if you are now unemployed.

4) Unreigned capitalism. The dogma that was pounded into Americans during the cold war was that capitalism was good and anything that wasn't capitalistic was bad... completely ignoring the lesson of the New Deal: which was that capitalism, without any checks and balances, was bad, but that with checks and balances could be good. Well the Great Depression generation is dying off and we have to relearn this lesson anew.

The question I have is this: assuming Democrats win control of Congress in 2006 and the Presidency in 2008 (big assumptions), is there anything that can be done to address these factors in a corrective way? Or do we have to wait for it all to crash?

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