US consumers turn activist after housing crisis and recession(Read article summary)
Americans are known for their conspicuous consumption habits. But has the urge to spend brought on some of the post-housing crisis, post-recession activism, like the 'Tea Party' movement?
Dean J. Koepfler News Tribune/AP/File
Here is why deficit reduction is so hard: Politicians get reelected by encouraging spending, not savings. Supporting policies that reduce current consumptionâ€”either by government or households--rarely gets anyone elected to anything.
Not to stereotype, but nations do have personalities. Italians eat. Russians drink. Americans spend. And when anythingâ€”or anyoneâ€”gets between us and our consumption, watch out.
Recessions make us grumpy in part because we canâ€™t consume as much as we like. In the depths of the current downturn, the savings rate in the U.S. topped 5 percent. But retail sales have been rising since October, and the savings rate has fallen in half. I suspect Americans wonâ€™t really feel better until we drive our savings rate back to zero.
And woe to any politician who stands in the way of this consumption juggernaut by proposing to raise taxes or cut specific government programs. Donâ€™t get me wrong, politicians can easily pander to our current anti-government mood by vowing to â€ścut spending.â€ť But just wait until they try to axe a specific program. Trimming government consumption--whether Medicare MRIs, oil spill clean-ups, or highway projects--wins few votes.
It is even worse with taxes. A pol merely needs to hint that he favors a tax hikeâ€”which might remove otherwise spendable money from votersâ€™ pocketsâ€”and it will be time to iron the flack jacket. The public response goes something like this: â€śI want my iPad. Donâ€™t bother me about my grandchildrenâ€™s debt.â€ť
As my colleague Eric Toder notes, misunderstanding this bit of American psychology is where conservatives have gone wrong ever since the Reagan years. Their â€śstarve the beastâ€ť theory was simple enough. They thought if they could reduce revenues, government would inevitably shrink. But the opposite happened. Instead of discouraging government spending, tax-cutting only encouraged more, since it decoupled consumption from the inevitable consequence, which is that we must eventually pay the bill by raising taxes.
Some argue that public mood is changing, and point to the tea parties as evidence. I donâ€™t see it. For one thing, I suspect this movement will dissipate as the economy improves. For another, the tea partiers are riddled with internal contradictions. Many demand smaller government but resist Medicare cuts with equal vehemence. They donâ€™t oppose government. They merely reject those programs that donâ€™t benefit them.
More than defining specific deficit reduction proposals, the most valuable role President Obamaâ€™s fiscal commission could play is finding a way to change Americaâ€™s spending uber alles mindset. Until we do, fiscal prudence will continue to be a political loser, and the red ink will flow faster than ever.
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