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What economic meltdown?

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POSTED: September 13, 2010 1:15 p.m.
For almost three years now the press has been full of descriptions of a “great recession,” “financial meltdown” and “economic disaster.” The reports of banks closing, pictures of long lines of unemployed and tragedy of people losing their homes through foreclosure persuade many that this country is in dire straits, suffering now and in danger of future bankruptcy.
The danger of bankruptcy has likely been postponed, not removed, but all signs indicate that the worst part of this long episode, so far, is the publicity. What has changed in this country to justify such descriptions of economic mess?
One would expect such news reports to be accompanied by widespread destitution, desperation and even hunger. News reports say things like, “Consumer confidence is tumbling.” At the end of 2009, according to one account, “Consumers are still shell shocked from the massive losses incurred during the recession.”
Housing prices certainly took a tumble, and both automobile and financial companies suffered massive losses and justified (in government circles) taxpayer bailouts. Pension funds and private investors saw their portfolios decrease by half or more in value. Some people who lost jobs certainly suffered and still do, but financial despair is not widespread enough to be very obvious in the streets and stores.
Government reports don’t reflect the dire straits cited in the news. According to figures from the U.S. Bureau of Economic Analysis, alcohol sales (for off-premises consumption) in 2009 were at a record high, as were food purchases. Americans consumed the equivalent of 28 gallons per person of bottled water last year. Sporting equipment purchases in 2009 were off just one-half of 1 percent from 2008. Purchases of jewelry and watches were down by only 2.6 percent.
Spending on health care was the highest ever (10 percent above 2007); even spending on dentistry was up. Consumers increased the money put into Internet service by over 50 percent since 2005.
The American Pet Products Association reported that spending on pets was at an all-time high in 2009.
How could consumers fail to cut back on non-essentials in the worst “economic crisis” since the Great Depression? Perhaps it’s because income has not decreased. The Bureau of Economic Analysis reported that income per capita (total income divided by population, not just by wage earners) for 2009 dropped only $43 from its peak in 2008 ($35,931), and disposable income actually edged up by 0.7 percent. Government unemployment benefits more than doubled in 2009 to $129 billion and were about 1 percent of total personal income.
Consumers did cut back on spending in some areas. Less was spent on new cars in 2009 ($165 billion compared to $233 billion in 2007), but that downward trend started in 2004, before the “financial crisis,” when the peak was $252 billion. Consumers also spent less on gasoline, because they purchased less of it and/or because it cost less per gallon. Vehicle miles traveled in 2009 dropped 1.7 percent from 2007, equivalent perhaps to citizens staying home one more weekend per year.
Total personal consumer spending was 20 percent more, not less, in 2009 than five years earlier, and personal savings, as a percentage of disposal income, was the highest since 1992. In the midst of this so-called financial crisis, the American Recovery and Reinvestment Act of 2009 committed $787 billion to “jump start” the economy. A large part of the “jump start” was to be stimulation of consumer spending because as many analysts like to point out, “Consumer spending makes up two-thirds (some say 70 percent) of the economy.” Where is the sense in stimulating spending if there has been no slowdown?
It appears nobody can say with any certainty what the American Reinvestment and Recovery Act was supposed to have prevented and what its consequences will be, short term or long term. It is safe to say, however, that it was not justified by a drop in the standard of living in this country.
It is a sign of the times that after 60 years of the greatest economic progress in history, a one- or two-year slowdown with almost record income and almost no cutback in consumption becomes a financial crisis, the “worst since the Great Depression.” In that Great Depression, per-capita income dropped by 26 percent and living standards were primitive compared to now.

Brown, University of Georgia professor emeritus, is an adjunct scholar with the Georgia Public Policy Foundation and author of “The Greening of Georgia: The Improvement of the Environment in the Twentieth Century.” The Foundation is an independent think tank that proposes practical, market-oriented approaches to public policy to improve the lives of Georgians.
 

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