Student Blog: Law, Markets, & The Role Of The State
BROTHER, CAN YOU SPARE A DIME? I NEED TO GET THE NEW IPOD.
One common theme in the stories about the current recession is that people were living beyond their means. Individuals used their homes as ATM machines and accumulated tens of thousands in debt to fuel their unbridled consumerism. Banks practiced equally risky behavior in investing in new high-leveraged investment devices that promised unbelievable returns only to be backed by pooled subprime mortgages and inflated home values. The story goes that after years of living beyond our means collectively as a nation, reality has finally set in and brought the American financial system to its knees.
Following the Great Depression, a generation of Americans adopted a frugal nature out of fear that the next economic catastrophe was around the corner. Today, the American public has responded to the current economic downturn with a similar fear. They are saving more and spending less. Between April and June of this year, the U.S. personal saving rate was 5 percent. This was a reverse of the trend that saw saving rates dropped from 9.59 percent in the 70’s to an average of 1.83 percent between 2005 and 2007. (http://www.mcclatchydc.com/226/story/75016.html).
An increase in the saving is indeed a noble thought, but this move towards thrift has come at a vulnerable time where the economy needs money to be circulated. To worsen matters banks have stopped giving loans for individuals to take risk and start new business or buy homes. As troubling as the saving habits of Americans may be, the realities of situation demand that we return to our consumerism. America is still the largest market for goods from most of the world. Our GDP is twice as large as that of China, the country that ranks second, and accounts for 20 percent of the global economy. (http://siteresources.worldbank.org/DATASTATISTICS/Resources/GDP_PPP.pdf)
While the Great Depression was felt worldwide, the national economies of the 1930s were nowhere near as interconnected as the global economy of today. Americans need a return to the normalcy of their spending ways and help fund the global economic recovery. The growing middle class in China, India and other growing markets and their consumerism will play a part in this recovery, but the global economy still needs the spending power of the one true consumer superpower.
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