Debunkery: Learn It, Do It, and Profit From It—Seeing Through Wall Street's Money-Killing Myths

BUNK 39

CONSUMERS ARE KING

Since the dawn of time after every recession folks have complained the economy can’t recover because consumers are too tapped out and won’t spend again. And because consumer spending is such a big part of our economy, if they don’t spend, we’re doomed! Eek! As I write in 2010 there are endless proclamations of US consumers’ demise. And though we get the same stories after every recession, pundits treat it like this is the first time they ever dreamed up this notion—and they never learn that the notion is flawed and wrong.

(Interestingly, the flip side is folks often complain US consumers are dangerously profligate and spend too much, and that will doom the economy. So, we’re doomed when people spend, and doomed when they don’t spend? Can’t have it both ways! Few folks think through how silly and contradictory these fears are.)

It’s true—consumer spending is a whopping 71 percent of US GDP.¹ Clearly, if such a big part falls far and fails to recover, that can hurt for a long, long time. Except consumer spending typically doesn’t fall much in recessions—vastly less than commonly imagined. It’s two other parts of the economy, business investment and net exports, that, though smaller, are much more volatile and almost always contribute most to an economic decline and recovery—and did this last time around—although it was little noted in the media.

Figure 39.1 Contributors to US GDP Decline Q2 2008 to Q2 2009—Consumption Isn’t the Driver

Source: Bureau of ...