Can You Explain Why Our Economy Seems to Only Work As Long As We Buy Lots of Cars and Other Consumer Goods?

BY busadmin  January 2, 2009 at 3:32 PM EST

A worker builds a car; AP photo

Question/Comment: Can you help me understand why our economy seems to work only as long as we buy lots of cars and other consumer goods, some of which aren’t really necessities? Isn’t there some other way, at least in theory, that workers could have jobs? It seems there is always money for armaments; why can’t we provide jobs through spending on schools, libraries, infrastructure, even social services? I’m not talking about a quick fix, but about a permanent attitude toward spending.

Paul Solman: This is always the dream: to spend rationally. Economic utopia seems so easy. Just read Plato’s “The Republic.”

But several experts I know think Plato is being ironic. And in fact, ironic or not, an economy directed by decisions from the top – a “command economy” — means that someone (or some group) must BE in command, which calls to mind the Lord Acton line about power corrupting: “Power tends to corrupt, and absolute power corrupts absolutely.” Not to mention the wastefulness of bureaucracies.

If “communism” is the economic system where everyone supposedly owns everything “communally” and “capitalism” is the system which relies on private transactions in a supposedly “free” market, then “socialism” is what we call the middle ground. The bigger the role of government in the economy, the more “socialist” it is.

As I’ve written here before, the accepted spectrum of government participation in the economy, in this era, seems to run from about 30 percent in the U.S. and Japan to some 60 percent in Denmark. (Cuba and North Korea would be exceptions that prove the rule.) The closer you get to 60 percent, the more “we provide jobs through spending on schools, libraries, infrastructure, even social services,” to quote your email.

But given the success of anti-tax measures in this country and the laws in most states prohibiting deficit spending – well, you see the problem.

Meanwhile, a cautionary note. Armaments ARE government spending. Government-dominated economies are not famous for spending less on their militaries.