American consumers contribute 70% of our gross domestic product, so we are dependent on them to buy stuff they can't afford or don't really need. That's why the government made it so easy for home buyers to get mortgages -- we needed the spending not only for the loans but also all the home furnishings to keep the economy humming.
It would have been almost anti-American (or at least anti-American economy) for the government or anybody else to warn consumers that housing values don't always go up, and that mortgage rates don't always stay low.
It was naive when I wrote a couple of years ago that the advertising industry had an obligation to point out the fine print in some of the sweet deals being made to keep home sales soaring. Why should the ad business be responsible for killing the golden goose (geese?)? Now I notice Bank of America is touting mortgage forms that spell out, in plain language, the terms of the agreement. But that won't hold back sales because there aren't many mortgages being written these days anyway.
And don't give much credence to the Obama administration's fling with behavioral economics designed to combat the notion that consumers make rational buying decisions. To keep the economy going, the government doesn't want consumers to act rationally. Business Week commented that behavioral economics is "a new role for government. Pennsylvania Avenue as counterweight to Madison Ave." In reality both sides are pulling in the same direction to keep consumers spending.
But that 70% of GDP is a pretty big load. To hit the mark, consumers must not only spend, they've got to stop saving. During the salad days of the economy consumers reduced their saving from 6% to 2%, and in the final stages of the boom, down to 0%. Now they're restocking their larders and salting away money at historic highs. That kind of parsimonious behavior simply can't sustain a robust economy revolving around consumer profligacy.
The magazine industry is another segment of our economy that finds itself too dependent on an unsustainable formula. Conde Nast, in announcing a change in top management, signaled that it was determined to also change its 70% reliance on ad revenue.
"We have been so overtly dependent on advertising as the turbine that runs the place, and that is a very, very risky model as we emerge from the recession," CEO Charles H. Townsend told The New York Times.
So how do we wean ourselves away from outmoded economic models? One answer for the economy in general is to move away from reliance on consumer and housing and toward business investment and exports. Let other nations take up the slack. The U.S. consumer has long fueled not only our economy but the worldwide economy, but now consumers in newly developed nations are gaining enough firepower to buy our cars, our food products and our toothpaste. General Motors now sells more cars in China than it does in the U.S., and the Chinese want the brand-name merchandise that we are so good at marketing.
For example, in response to the changing U.S. market, Procter & Gamble is "doing the once unthinkable -- slashing prices -- at the same time it pushes into new territory including Brazil, India, and parts of Africa, where it has longed lagged," according to The Wall Street Journal.
It used to be that buying luxury goods in this country was an aspirational thing, but now the new consumer is "embarrassed by flashy shows of wealth," the Journal said in another story.
That isn't the case with consumers in newly developed countries. Striving for little luxuries is a powerful incentive for consumers in those countries to work hard to boost themselves out of poverty.
What could be better than U.S. consumer companies paying emerging-nation workers a living wage so they can afford to buy some of the products that would make their lives more enjoyable, just like Henry Ford did here so his workers could afford to buy his cars?
If -- and admittedly, it's a big if -- exports and business investment can take the pressure off the U.S. consumer to buy beyond his or her means, there's at least a chance that our economy can chug along without fomenting the buying frenzy that took us to the brink of disaster -- and will surely crush us the next time.