As Retail Goes...

...so goes the economy. Watch the LA Times try to spin this as good news for bargain hunters!

After 59 years in business, the Mervyns department-store chain called it quits Friday -- promising a huge going-out-of-business sale just in time for the holidays.

And there is plenty of competition for a close-out Christmas. Linens 'n Things Inc. began a liquidation sale Friday, and Shoe Pavilion Inc. starts one this weekend, according to firms that said they were hired to liquidate the stores.

Already gone are the novelty retailer Sharper Image Corp., Wickes Furniture and Levitz Furniture, and retail experts say more closings loom.

"This is unprecedented, really, the number of stores that are going to be closing," said Daniel Kane, principal of Tiger Capital Group, one of several firms hired to liquidate Linens 'n Things and Shoe Pavilion. "There's going to be a tremendous amount of bargains out there."

I think the larger point is that retail stores can't stay open, not that there will be abundant sales spectaculars.

Consumer spending is something like 2/3 of all economic activity, and when people can't keep their job, or can't borrow against their house or their credit card, they can't spend. They don't have a money printer like the government. They can't bail themselves out. So belt tightening leads to store closings, which leads to more job loss, which leads to belt tightening. It's a downward spiral.

And it's UNSUSTAINABLE to rely on the American consumer to drive the entire economy. You have to make stuff as a nation. This is why we desperately need a job creating fiscal stimulus.

On the other hand, there’s a lot the federal government can do for the economy. It can provide extended benefits to the unemployed, which will both help distressed families cope and put money in the hands of people likely to spend it. It can provide emergency aid to state and local governments, so that they aren’t forced into steep spending cuts that both degrade public services and destroy jobs. It can buy up mortgages (but not at face value, as John McCain has proposed) and restructure the terms to help families stay in their homes.

And this is also a good time to engage in some serious infrastructure spending, which the country badly needs in any case. The usual argument against public works as economic stimulus is that they take too long: by the time you get around to repairing that bridge and upgrading that rail line, the slump is over and the stimulus isn’t needed. Well, that argument has no force now, since the chances that this slump will be over anytime soon are virtually nil. So let’s get those projects rolling.

Will the next administration do what’s needed to deal with the economic slump? Not if Mr. McCain pulls off an upset. What we need right now is more government spending — but when Mr. McCain was asked in one of the debates how he would deal with the economic crisis, he answered: “Well, the first thing we have to do is get spending under control.”

If Barack Obama becomes president, he won’t have the same knee-jerk opposition to spending. But he will face a chorus of inside-the-Beltway types telling him that he has to be responsible, that the big deficits the government will run next year if it does the right thing are unacceptable.

He should ignore that chorus. The responsible thing, right now, is to give the economy the help it needs. Now is not the time to worry about the deficit.

I feel a little better about the Beltway chorus after seeing Ruth Marcus' recognition that cutting spending in an economic downturn is suicide.

Ruth Marcus: I'm sure I should have been clearer on this in the column, but I was not arguing for mid-recession belt-tightening. We're all Keynesians now and I am open to stimulative action in the short term. What I am hoping for is that the moment could be used as a way to forge a more responsible, more productivity-enhancing budget in the longer term, that could fund investments in important things like health care, and free the next president from some of his more unaffordable promises.

The responsible thing to do right now is invest in America's future, in its infrastructure and in long-term sustainable industries like renewable energy. Fixing the health care crisis for the sake of American competitiveness must be a priority as well. Considering that John McCain thinks that putting money in the hands of low-income people who will actually spend it during a recession makes no sense and rewards "lucky duckies", the choice for President is clear.