Why are we not focusing on stimulating consumer spending?


Woman shopping; AP photo

Question/Comment: Hello, Paul. I am certainly no economist (as my question will show), but I learned in business school (to my surprise at the time) that two-thirds of GDP is the result of consumer spending, not corporate or government spending. If that is true, why are we focusing on “bailing out” or stimulating the banking sector with the $700bn? Why are we not focusing instead on stimulating consumer spending?

How to accomplish this stimulation is, of course, a separate question, but would not this changed perspective of assisting the “demand-side” rather than the “supply side” result in a discussion that would give us taxpayers the potential of receiving a bigger bang for our bail-out buck? Rather than simply averting a crisis by sluffing off the ‘toxic assets’ of the banking sector onto us taxpayers, we would be looking to really stimulate the general economy. If we’re going to spend $700 billion anyway, why not maximize its effectiveness?

Paul Solman: The argument is that the world’s governments had to do something FAST and mailing out stimulus checks to consumers is anything but. Nor is it clear people would actually spend the extra money – consume, that is – instead of saving it.

The problem was/is a credit crunch: banks not lending. That means businesses and consumers are not able to borrow; that means consumption has stopped in its tracks. So, first and foremost, the idea is to replenish the banks and get them lending.

George W. Bush adopted as a motto “the ownership society.” He advocated PRIVATIZATION: of social security and medical care. NOT part of the program – or even a bad joke at dinner — was NATIONALIZATION, with which he is now more than flirting. You have to figure that, given his ideology and with as much negative public reaction as he was sure to get, the President and his advisors were scared out of their socks. So they went for the quickest fix possible.