Less Money, Mo' Problems

The American economy is driven by consumer spending. As long as everybody must have the new Britney perfume or the newest handheld gadget or computer game or whatever, the economy will be in decent shape. That is no longer happening.

Strong evidence is emerging that consumer spending, a bulwark against recession over the last year even as energy prices surged and the housing market sputtered, has begun to slow sharply at every level of the American economy, from the working class to the wealthy.

The abrupt pullback raises the possibility that the country may be experiencing a rare decline in personal consumption, not just a slower rate of growth. Such a decline would be the first since 1991, and it would almost certainly push the entire economy into a recession in the middle of an election year.

You know what, we probably need to reduce the consumption rate and increase the savings rate. The middle class would be better served by getting themselves out of debt instead of becoming subservient to creditors. But the economy is virtually dependent on such desperation, driven by stock market exigencies to show perpetual growth.

People are concerned with the economy and aren't ready to mortgage their future any more. The challenge for Congress and the President to boost consumer confidence is great.

The White House and Congress are separately crafting economic stimulus packages that they are likely to unveil within the next two weeks. Both are looking at some form of tax rebate to pump money into the economy, but they differ on what else should be included. Bush is considering a one-time business tax break to encourage investment, while Democrats are focused on additional spending to help those struggling the most [...]

"We're not where the administration wants to be, but this is something people want to get done," said House Financial Services Committee Chairman Barney Frank (D-Mass.), who is helping to develop the Democratic package. "Sometimes people get political. But this is fairly serious. We want to stave off a recession or something that feels like a recession."

Incumbents ought to be spooked. Three-quarters of the country thinks the country is on the wrong track. They've seen a ruling class fiddling while Rome burns, inattentive to their real-world concerns. There's a reason the Presidential race has angled back toward the economy. A recession is looming, and one that won't be as mitigated by a traditional bailout. The problem is structural, as runaway capitalism without regulation continually leads us down the blind alley of speculative bubbles without concern for when it all falls apart.

The answer lies in discouraging these bubbles in the first place, not more tax breaks and bribing people back into the stores.