Schoen: Recovery depends on wage growth

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: