The recession is over! Yay! Well, at least according to economists, it is. If you read the news much, it probably doesn’t seem like it. If you’re still out of work, or you’re using this newspaper to keep warm, it certainly doesn’t seem like it. Maybe if I start off every column with the good news, we can fool ourselves into believing it.
And that’s important; being able to fool ourselves that things are OK, or that they’ll get better soon. This constant drumbeat of “the economy sucks” is taking its toll on one of the most important economic recovery tools we have: consumer confidence.
Former President Bush knew this back in 2001 when he encouraged us to “go shopping” and continue living normally after the Sept. 11 attacks. He was criticized by political pundits for saying that, but he knows that 70 percent of our economy consists of household spending.
If we aren’t encouraged to go out and shop, we’ll just sit around, wring our hands, and talk about how terrible things are. We’ll stop spending money, which means that businesses will lay off employees. Those now-unemployed people will stop spending money, which means different businesses will lay off their employees.
Pretty soon, we end up where we are now. “Woe is us! No one is spending any money! The economy is in the toilet!” Except that it’s not completely true. Lots of people are spending money. Household spending is up at a normal growth rate, our nation’s total economic output has increased at a normal rate for the past year, and corporate profits are as high as they’ve ever been
But most people say that things are terrible. Even though 46 percent of survey respondents in a national poll rated their personal finances positively, only 9 percent of them thought the economy was positive. Why is that? Perception. The news says that the economy is bad, so it must be bad. Because it’s bad, I should save my money and not spend it. The vicious cycle continues.
Not only that, but we’ve also started lashing out at people who are actually spending their money. I’ve heard lots of variations on “How can you be spending any money when we’re in such a deep financial crisis! Don’t you know that people are suffering?” Even our local government officials are under attack for going on family vacations. Well, I say God bless you, patriotic Americans, for keeping the economy going. Go forth and spend some more.
I don’t need to remind you of the parts that haven’t recovered yet, including jobs and home prices. Business bankruptcies are still high, and will likely be about the same as they were last year. I’m not immune to this; my mom’s business went bankrupt this year, and I have two people in my house that would like a job but can’t find one.
I’m going to sound callous for a moment here. Nice people won’t talk about this, but the dirty little secret is some of these businesses are failing because they are poorly run. Some of them were marginal businesses to begin with, and only thrived when the money was flowing freely. But once the easy credit party ended, and consumer spending actually declined by a few percentage points, these businesses on the fringe weren’t able to survive.
That’s hard to say, because some of these business owners are my friends and family members, and many of them are really nice people. But we don’t guarantee success in America; we can only guarantee opportunity.
Corporate profits are near all-time highs because CEOs earned their money. By relentlessly cutting costs (usually jobs and salaries) and pushing for efficiency (one person doing the work that two people used to do), they’ve positioned themselves to be more profitable with less volume. My retail business is surviving by taking the market share from my competitors, and several of them have gone bankrupt. They all blamed the economy, but the reality is that they took their customers for granted, and didn’t change their business when the world changed around them.
The world is changing for us as citizens, too. I’d like to believe that we would want a more diverse economy that’s not just based on us spending money at each other’s retail stores. One where government invests in research, so America can still attract the best and the brightest from other countries. One where breakthrough innovation is encouraged and richly rewarded, providing incentives for immigrants to come and start their businesses here, like the founders of Google, Intel, and eBay did.
For now, we’ll just have to keep on spending until we get there.