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NBCNews.com’s economics reporter John Schoen joined us for a live Web chat Wednesday to answer your questions about consumer credit.
Here’s one of John’s answers to questions from the live chat. (See below for the full Q&A.)
Gary asked:
“I hear two conflicting statements all the time. The first is we Americans spend to much and don't save. The other is the economy depends on the American consumer to start it up and keep it going. How can we do both?”
John replied:
“It may sound like a contradiction – but both statements are true.
Again, some 70 percent of our economy depends on spending by consumers - the rest comes from exports, business investment and government spending. If consumers slow their spending, none of those other sectors is big enough – or growing fast enough - to make up the slack. Government spending, in fact, is headed in reverse.
Part of the current weakness in the economy comes from the “hangover” after a big borrowing spree during the last expansion – in the 200s. The increase in spending was financed with borrowed money – which wasn't sustainable.
Now, as that debt is paid down, and more money saved, it takes away from income that could be spent for foods and services.
The real solution is a faster increase in wages. If there rose faster, we’d all have money to save, pay down debt and spend. But that’s not happening.”
Here’s the full chat archive:
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Can't really have a recovery, If you keep paying these low wages and outsourcing most of the jobs. Recovery, not gonna happen. If, you want Americans to buy these products, then you must raise the wages and provide jobs.
They feel no reason to do so with 50 million excess Americans in the labor market plus a global labor market as well. Unless we somehow make it cost more to use foreign labor or cheaper than living wage labor this will continue until the country implodes.
Walmart is a great example of this. The company makes several billion a year, the owners are all worth billions, and yet most of their goods are made in China and we the US taxpayers suppliment their @!$%#ty wages across the board in the form of food stamps, welfare, housing assistance, childcare, healthcare and various other costs that get socialized by this greedy company.
I agree Knight. Make it cost them more to use foreign labor. I don't care if we tax the sh*t out of them. We also need a cost of living wage raised for those making minimum wage. Make them pay higher wages, for the jobs they can't outsource. If they wanna leave the USA, then let them go sell that sh*t to the foreigners, making sh*tty wages. See how long that lasts.
A lot of people don't agree with this, in fact millions think we should ax the minimum wage altogether... But any job being done by an adult for less than a living wage ends up costing everybody else in food, housing, medical, misc assistance to meet that level. Because walmart chooses to not pay a living wage you the US taxpayer are being forced to make up the difference for millions of people across the country. It isn't the worker's fault, they took whatever they could find - and are the most productive workers in the world. It isn't the taxpayers fault besides stupid layout that shifts more burden to the middle class over the last 30 years. Walmart and MILLIONS of other companies are doing this to take advantage of the rest of us, free riders where their CEOs make tens or even hundreds of millions and in the end the workers lose out, the community loses out, and the country loses out. Status quo must end, Mittens sure as hell is not the answer to that.
Walmart, makes most of its employees eligible for welfare assistance. I don't think we can elect someone that can fix these problems we face. The banks, and the Corporations own the politician.
The consolidation of wealth and power by the few at the expense of the many has ultimately destroyed every great human civilization we know of, America will be no different. 20% of the population now owns 87% everything with a monetary value, and the 80% is forced to fight for the 13% that is left... Sooner or later the masses will get smart and stop fighting amongst themselves and revolt against the oligarchs and plutocrats. Once again history repeats its self.
Is it that Walmart is not paying their workers enough or is it that half the people should be doing the same job at twice the pay? No opinion on the matter, just playing devil's advocate...
knightofdespair,
While I detest Walmart, It is not the only demon at work here.
We first ought to face the fact that the collapse of 2008-9 was really the start of a depression not a recession. However, those protections so detested by the ultra-conservatives, like the FDIC, Social Security, and unemployment insurance blunted the effect of the housing and bank collapse. And while unable to totally reverse the layoffs and business closings, the stimulus programs did stabilize the economy.
However, with lingering unemployment rates of over 8%, it is naive to expect any meaningful pay increases. Off-shoring pressures, automation and a continuing slack demand will not bring any leverage to the labor market. Just as both contradictory questions had the same answer, the end answer is the question "Which came first, the chicken or the egg?"
Economies are cyclical and recessions are a normal part of that cycle - the next one is always just around the corner. We have had 20 recessions in the last 100 years and recovered from all of them no matter who was President, which party controlled the Congress, and whether or not any "stimulus" was used. In fact, very little "stimulus" was used in recessions prior to 2000. That is because economies recover all by themselves, as long as government does not intervene with unwise policies that deepen and prolong the recession, and that is exactly what Obama, Reid and Pelosi did.
Hey Peter - may want to check your facts and tell the whole story. The economy collapsed on Bush's watch, and he, NOT Obama, signed the first stimulus (worth almost $800 Billion!) and supported the second. But don't let facts impair your bias....
I'm not saying they are the only ones, it is an extremely large system that is hemmoraging all of our rightful income to a handful of greedy CEOs and foreign countries. The demand side of capitalism is doomed to fail when bleeding out this much vital discretionary spending money that is not being replaced by anything else.
Capitalism simply does not work without demand, and our greedy companies have colluded on a national scale for short term profits in a way that has led to long term and widespread lack of liquid assets.
"unwise policies that deepen and prolong the recession, and that is exactly what Obama, Reid and Pelosi did."
That is the biggest crock of sh!t I have seen you post yet.
Stimulus is only short term, not gonna fix the economy. These companies are getting what they deserve. Unemployment rate is higher than 8% lol. Banks are still making sub-prime loans, and handing out credit cards to less than perfect creditors. The first time around, we had a lot of idiots jumping on board to take these risky loans, this time around, not that many are taking the bait. President Obama, can do all the pandering he wants, not gonna fix the real problems we face. The only thing I see rising is gas and groceries, not my wages. The Military cuts coming will add thousands more to the unemployment numbers. The civilians, running a business around these bases, will also close there doors.
Hit Girl - I suggest you do some actual research. Economic cycles do not line up neatly with Presidents terms in office. Are you aware that When Bush2 was sworn into office that GDP growth was negative and we were headed into recession??
I assume you are talking about TARP which Bush did sign. That was not a stimulus program. The immediate impact was $250 billion loaned to banks and investment firms. Those were loans and needed to be repaid, with interest. Most of the banks simply set the money aside and repaid it just as soon as they were permitted to do so. The U.S. Treasury made a profit on those loans.
It is Obama's anti-business, class warfare agenda and rhetoric that crippled the economy and caused the deep recession and the weak recovery. Here is just one example:
A recent report showed that those in the top 1% of the incomes have cut back on their spending and tripled their savings rate. They have also significantly increased their purchase of real estate while cutting back on their investments in stocks. When one of these folks was asked why he was saving more and spending less, he answered that because of the coming financial crisis he wanted to have a larger portion of his wealth in “safe” assets in order to have “a wide moat” around him, even though he knew it was “hurting the economy”. Because a high percentage of the spending that drives our consumer economy is done by upper income groups, the longer Obama and others push a class warfare strategy, the worse our economy will perform. There is no way to make up for that drop in spending.
Several folks I know who are financial advisors have commented that the easiest financial crisis there is to prepare for is one you can see coming. And the $5.2 trillion of national debt he has run up in just 3 1/2 years assures that we are going to have that crisis. The only question now is when and how bad it will be.
Hmmm, Peter....when one of these folks? Interesting sample size for a study.
Government spending, in fact, is headed in reverse.
An opportune time to remind everyone of the fallacy of spending under this administration.
Of all the falsehoods told about President Barack Obama, the biggest whopper is the one about his reckless spending spree.
As would-be president Mitt Romney tells it: “I will lead us out of this debt and spending inferno.”
Almost everyone believes that Obama has presided over a massive increase in federal spending, an “inferno” of spending that threatens our jobs, our businesses and our children’s future. Even Democrats seem to think it’s true.
But it didn’t happen. Although there was a big stimulus bill under Obama, federal spending is rising at the slowest pace since Dwight Eisenhower brought the Korean War to an end in the 1950s.
Even hapless Herbert Hoover managed to increase spending more than Obama has.
Here are the facts, according to the official government statistics:
• In the 2009 fiscal year — the last of George W. Bush’s presidency — federal spending rose by 17.9% from $2.98 trillion to $3.52 trillion. Check the official numbers at the Office of Management and Budget.
• In fiscal 2010 — the first budget under Obama — spending fell 1.8% to $3.46 trillion.
• In fiscal 2011, spending rose 4.3% to $3.60 trillion.
• In fiscal 2012, spending is set to rise 0.7% to $3.63 trillion, according to the Congressional Budget Office’s estimate of the budget that was agreed to last August.
• Finally in fiscal 2013 — the final budget of Obama’s term — spending is scheduled to fall 1.3% to $3.58 trillion. Read the CBO’s latest budget outlook.
Over Obama’s four budget years, federal spending is on track to rise from $3.52 trillion to $3.58 trillion, an annualized increase of just 0.4%.
There has been no huge increase in spending under the current president, despite what you hear.
Federal Government Outlays according to the White House Office of Management and Budget:
2007 - $2.729 trillion
2008 - $2.983 trillion (last Bush2 budget)
2009 - $3.518 trillion (2009 budget signed into law by Obama after taking office)
2010 - $3.456 trillion
2011 - $3.603 trillion
2012 est. - $3.796 trillion
In just 4 years Obama has increase federal outlays by over $800 billion, an increase of over 27%.
You should see the deficits that Romney is going to run! The Republicans will not have the b--ls to cut anything but taxes.
The wars were put ON the budget, President Obama did not hide them like Bush. The ARRA recovery program and unemployment benefits extensions all had to be paid for due to Bush's reckless incompetence.
Cat had the most profitable year ever and still wants to cut wages to "match" overseas.... they want $15 per hour... and have still given top executives MASSIVE wage increases... so that about sums up American Big Business..... way to go MITT and GOP....
kevin bitz you are so right on
with this global economy washington needs the big boy's, wall street, the BofA, general electric, health insurance in the top of their list to keep their heads above water. the middle class needs a healthy wage which in-turn will without a doubt help retail and housing, and i also it would be beneficial for the banks and washington as a whole, and it would a much healthier economy. i don't see the middle class wages making a come back for a longtime. the unions have been self destructive, as like washington greedy selfish pigs. to sum it up this is a selfish economy we live in, there just never enough for these pigs