Consumer spending is down in the United States. One of my favorite columnist, Nobel award winning Paul Krugman writes on the impact of this drop in spending:
The long-feared capitulation of American consumers has arrived. According to Thursday’s G.D.P. report, real consumer spending fell at an annual rate of 3.1 percent in the third quarter; real spending on durable goods (stuff like cars and TVs) fell at an annual rate of 14 percent.
To appreciate the significance of these numbers, you need to know that American consumers almost never cut spending. Consumer demand kept rising right through the 2001 recession; the last time it fell even for a single quarter was in 1991, and there hasn’t been a decline this steep since 1980, when the economy was suffering from a severe recession combined with double-digit inflation.
As most economists, he writes of the potentially devastating effects of consumers spending less. However, before you start spending for the sake of the economy, keep in mind this statement he makes:
No, what the economy needs now is something to take the place of retrenching consumers. That means a major fiscal stimulus. And this time the stimulus should take the form of actual government spending rather than rebate checks that consumers probably wouldn’t spend.
In other words, rather than you, the consumer, putting yourself in debt to help the economy, you should be pinching your pennies to encourage your government to invest in your countries infrastructure. In other words, if you pinch pennies, spend less, become more frugal, the government may have to step in to build more bridges, more roads, better schools, etc. Which is the better option? Consumers digging themselves deeper in debt or the frugal penny pinchers benifitting from a better country paid for because of their frugality?