It’s The Consumer’s Fault

Have you noticed that no matter what happens with the economy it is the consumers who are at fault? As the economy slides into recession, the reason given is that consumers are spending less. Consumer spending supposedly accounts for most of the economy and when consumers are not out buying the entire country suffers. When the media reports on the “stimulus” checks being sent out by the government this summer, the question is raised of whether consumers will actually spend the money. A repeated implication is that the “stimulus” plan will fail if people use the money to pay existing debt or worse save the money.

Of course the reason given for the recession is the subprime mortgage crisis. How did that economic disaster come about? Consumers were irresponsible. People bought houses they could not afford. Not enough money was saved for a down payment. People refinanced and took cash out of their homes to spend on frivolous consumer purchases. Banks tried to help people who were poor credit risks by extending credit anyway. Look at what happened. Those people took the money, spent it on consumer goods, and did not pay it back.

In fact consumer spending has been a problem for so long, the banks lobbied intensively for a new bankruptcy law that President Bush signed in 2005. The “Bankruptcy Abuse Prevention and Consumer Protection Act 0f 2005” made it more difficult for consumers to discharge debts through bankruptcy. The banking industry claimed that the law was needed to protect our financial system from irresponsible consumers.

So now in 2008, the health of our financial system depends on consumer spending. Actually people are spending more money than ever today. The problem is that the money is being spent on frivolities such as gasoline to commute to work, groceries to feed the family, healthcare and education for children. Those costs have risen so dramatically in the last year that most family budgets are overwhelmed. Few families ever expected that the gas to run the car would cost more per month than the payments to purchase the car.

Government leaders and the executives of financial services companies keep finding reasons to blame the consumer for any and all economic problems. Perhaps the leaders of these institutions should look more carefully at themselves. Unprecedented government debt totaling trillions of dollars is undermining the value of U. S. currency. The result is that food and energy costs more in dollars on the world markets. Lenders are quick to sell all sorts of exotic mortgages to people with questionable ability to repay. Then the lenders are just shocked to discover that people judged poor credit risks actually are.

Despite all the media hype about a recession resulting from consumers not spending, I don’t think that is the real source of our economic problems.

Joseph Ganem is a physicist and author of The Two Headed Quarter: How to See Through Deceptive Numbers and Save Money on Everything You Buy