Think about it. Sixty five to seventy percent of American Gross Domestic Product is a direct result of consumer spending. That means that practically 2/3 of every GDP dollar earned in this country is a direct result of what you spend on clothes, homes, cars, insurance, etc. American consumer spending represents 18% of the entire world's GDP!
Consumer spending in other industrialized nations as a percentage of GDP pales in comparison. Other countries have manufactured the products and they've counted on Americans to buy them. We now have seen the darkness at the end of the tunnel and have stopped buying all those foreign goods, as well as domestic ones. Hence the national and worldwide economic downturn.
In sync with our ridiculously high spending in the recent past, our savings percentage has been one of the lowest among industrialized nations. While savings have recently increased, it has averaged around .4% in the U.S. (that's 4/10ths of a percent). In Germany, it is close to 11%, Japan - 3.1%, U.K. - 2.9%, Italy - 6.8%, China - 24%, India - 28% (per Financial Services Roundtable analysis of OECD data).
We now know what an over-saturated American consumer that can't spend anymore looks like. If you want to see one, just look in the mirror, or at the very least, at your neighbors. Automobile sales are down more than 50% and the last of our major manufacturing industries is now in jeopardy. Home sales and the sale of products we usually purchase with our "disposable income" are down dramatically as well.
The real question people should be asking today is not how quickly the economy will turn around, but will per-capita consumer spending ever return to previous levels? Will the American consumer ever spend 70% of GDP again?
My guess is that it will not. We're in the midst of a watershed event within the American economy. American consumers have maxed out their credit cards, over-committed on their primary mortgages, taken out second mortgages to pay for their new boat or European vacation and are finally seeing that perhaps they were a little reckless with their spending.
Consumerism has worked its magic on the American people over several decades and we've been good soldiers by buying lots of needless stuff and, to paraphrase the late, great George Carlin, bought bigger houses in which to store all our stuff.
Only in America would it be possible to cumulatively spend millions of dollars buying small rocks in boxes and call them pets. Only in America would we sit in front of any one of several 24/7 cable product shows and order useless products and then never take them out of the package. Only in America would a guy like Ron Popeil make millions of dollars selling products like the Pocket Fisherman. I mean, really, is a fishing rod that fits in your pants pocket really necessary? And can't we get up off the sofa and turn out the lights rather than just clap our hands?
Like our parents or grandparents who survived the great depression, a sense of frugality and responsibility will develop within the American psyche during the current crisis and on the far side of this downward spiral you'll see a renewed sense of financial responsibility and conservatism. People aren't going to jump back into the spending pool so quickly this time.
To reinforce this new sense of financial conservatism, messages being communicated to us from Oprah and all the new age gurus will take root. Messages that buying more does not make you any happier will discourage the automotonic purchase of more and more products. Messages that reinforce the "green" movement will discourage us from buying products in plastic bottles or those disposable products like disinfectant wipes that replaced simple handwashing. Making our home artificially smell like springtime in the mountains won't seem so important either. We'll simply return to opening our windows and letting fresh air blow through the house.
And when these changes take effect, we'll need to address the negative impact it will have on GDP by starting to produce useful products that Americans, Europeans, Asians, and others will not only want, but need. Products that reduce greenhouse gas emissions, products that improve the mobility of humans such as electric or fuel cell cars, products that clean the water and air, products that produce more affordable energy, products that increase the survivability of this planet, not ones that decrease it.
If we transition to a new economy of necessary, value-added products and services, America will survive and continue to grow after this economic turmoil has subsided. If we don't, plan on a much lower standard of living for your children and those generations that follow. It's up to us.
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