Tuesday, November 6, 2007

The American economy, it seems, is completely built on debt and over-consumption, so if we stopped over-consuming, our economy wouldn't work. How do you see it working out that the economy could survive a massive down-shift in consumption?

I thought I'd address these questions here for everyone to read.

We discussed these issues in class just last week. And they are things which I have been thinking a lot about, especially since my post on other-centeredness.

While it is true that the American economy is built on over-consumption and debt, that does not mean that is the way it must be. There are actually indications that say this is not sustainable. Obviously, everyone can see why--there is no way to maintain this amount of debt and not feel the repercussions long-term. you wouldn't doing it in your personal finances and we shouldn't keep it up as a nation.

My greatest concern is what the debt actually looks like. A large majority of the national debt (hovering over $9 trillion now) is held by China. Their economy is the only economy that can afford to buy the treasury bonds on the open market. Having China (or anyone for that matter) hold that much of a stake in our economy is not healthy. If ever there is an international crisis and they pull out their investment then we would be in a much worse situation.

So, while an overnight shift away from over-consumption would collapse the economy, a gradual reduction in reliance upon Chinese investment and consumption in general would not force us to rely so heavily on going into debt. The American economy is used to very healthy and large economic growth. Typically growth in the 3% range is good. America has had a steady growth rate in the 7% range, and in the 60's - 80's that growth was double digits. We have been spoiled (well, the wealthy have been spoiled, but that's for a different post) with high growth numbers.

So, if we were to reduce our consumption of goods and live lives not so heavily oreinted on ourselves and our "needs" the economy could still function and, some would argue, that would actually allow the economy to become more sustainable in the long run.

The examples of this is in parts of Western Europe, where after periods of extreme growth they have leveled off. May Americans cringe at using Western Europe as an example of good economies because there are also downfalls that come with those economies (very high unemployment rates, high taxes, etc.) but there are very good reasons for those downfalls.

So, to summarize, if Americans stopped buying stuff overnight then yes, it seems as though the economy would collapse. But, if there was a steady readjustment of priorities and spending habits then I believe the market would adjust and growth would level off at a steady and healthy rate.

Now playing: The Robbie Seay Band - Beautiful Scandalous Night
via FoxyTunes


Amy said...

semi-related to your post, I saw a Dave Ramsey bummer sticker the other day that said "Debt is normal, be weird". I laughed.

In our social circle most all our friends live debt free lifestyles and so our "small" amount of credit card debt (in society's eye) makes us feel like we have a pretty big burden.

I have other thoughts- mostly related to credit use and definitions of debt (one during our pre-marital counseling defined debt as not being able to make all the minimum payments- not necessarily everything you owe), but I need to think more about the global debt economy.

Luke Ankeny said...

I want to go to your school!

cherice said...

I agree completely that this is what is needed, because obviously (as you point out) we can't over-consume forever: it's not sustainable. Eventually resources will run out, or perhaps before that people (China) will get tired of loaning us money.

So...new blog post, maybe? How do we go about getting people to stop over-consuming? How do we get the companies who encourage debt and always buying "the next new thing" and making products to break, how do we get them to change to a more sustainable way of doing business? How do we get people to let go of their addiction to more and more stuff?

Maybe our entire economy *should* collapse so that we end up having to start over and be more sustainable this time. (But that's American heresy!)