All of a sudden, John Maynard Keynes has returned to the A-list. Exiled at the beginning of the Reagan administration, he is once again in vogue after the policies of Reagan and his successors collapsed in an economic meltdown.
Keynes made his name during the Great Depression when he knocked Says law off its pedestal. Says law stated that supply and demand would always balance out in the long run. 1929 put the lie to that.
Instead, Keynes put forth a theory of aggregate demand in which he argued that demand evolves from the interaction of consumption, investment and government spending. In short, he believed that if consumption drops because of an economic downturn, then it was necessary to increase government spending, which would put money in the consumer’s pocket, which, in turn, would be used to buy goods, and this would stimulate the economy. (Of course, this implied that government spending be reduced in good times, something our leaders ignored during the Cold War.)
The only problem I have with Keynes theory is that it was developed when mass consumption was in its adolescence.
It is difficult to date exactly when the age of mass consumption began since several factors contributed to it. There was the sudden flooding of the consumer market with large quantities of mass produced goods that were affordable. Some argue that mass consumption really took off in the 1890s with the growth of corporate bureaucracies and the increased pay for white collar workers.
If we accept 1890 as an arbitrary start date, then Keynes formulated his theory when mass consumption was a little over forty years old. At this time, there was still room for growth in the consumer market. Many homes were without indoor plumbing or electricity. Coal or wood still heated houses and cooked the food. Clothes were washed by hand; fields were plowed by a team of mules; hot water had to be heated on the stove.
Now we fast forward to today when consumption is seventy percent of our GDP, and one could argue that much of this consumption has been superfluous since most of our basic needs were met in the go-go days of the fifties and sixties. In addition to that, this superfluous consumption has been floated on a sea of consumer debt.
How do you stimulate spending in a saturated consumer market? Whatever money is funneled into the consumer’s pocket will most likely go to pay down consumer debt. We have been floating on a consumer bubble, and it has popped. It is unlikely it will be re-inflated.
Like Icarus, our economy flew too close to the sun and has come crashing back to earth. Unfortunately, there are no more wings to be had.
Thursday, June 11, 2009
Subscribe to: Post Comments (Atom)
longchamp, tiffany and co, tory burch outlet, louis vuitton, oakley sunglasses, ugg boots, polo ralph lauren outlet, kate spade outlet, christian louboutin outlet, ray ban sunglasses, nike free, michael kors, louis vuitton outlet, ray ban sunglasses, polo ralph lauren outlet, kate spade handbags, air max, nike roshe run, ray ban sunglasses, longchamp outlet, nike air max, louis vuitton, nike free, coach outlet, chanel handbags, oakley sunglasses, louboutin outlet, air jordan pas cher, nike outlet, replica watches, gucci outlet, replica watches, oakley sunglasses, louboutin pas cher, sac longchamp, prada handbags, nike air max, cheap oakley sunglasses, ugg boots, louboutin shoes, oakley sunglasses, louboutin, ralph lauren pas cher, burberry, prada outlet, uggs on sale, jordan shoes, longchamp outlet, tiffany jewelry, longchamp pas cher
ugg pas cher, pandora jewelry, canada goose uk, pandora charms, marc jacobs, swarovski crystal, juicy couture outlet, moncler, ugg,ugg australia,ugg italia, moncler, louis vuitton, thomas sabo, moncler, pandora jewelry, doudoune canada goose, pandora charms, moncler, canada goose, louis vuitton, ugg boots uk, replica watches, moncler, bottes ugg, louis vuitton, juicy couture outlet, swarovski, supra shoes, hollister, moncler outlet, canada goose outlet, sac louis vuitton pas cher, ugg,uggs,uggs canada, canada goose, canada goose outlet, louis vuitton, coach outlet, links of london, wedding dresses, moncler, canada goose, moncler, canada goose
ferragamo shoes, ghd, gucci, toms shoes, nfl jerseys, louboutin, soccer jerseys, mcm handbags, birkin bag, converse, nike air max, nike air max, chi flat iron, valentino shoes, p90x workout, mont blanc, hollister, montre pas cher, lululemon, vans shoes, north face outlet, bottega veneta, herve leger, ray ban, ralph lauren, reebok shoes, jimmy choo shoes, instyler, beats by dre, mac cosmetics, baseball bats, karen millen, wedding dresses, babyliss, oakley, soccer shoes, new balance, celine handbags, insanity workout, hollister, vans, lancel, abercrombie and fitch, hollister, asics running shoes, longchamp, timberland boots, nike roshe, north face outlet, converse outlet
true religion jeans, north face, lululemon, nike huarache, timberland, nike roshe, converse pas cher, air force, hollister pas cher, michael kors outlet, true religion jeans, hogan, hollister, ray ban uk, michael kors outlet, michael kors outlet, coach purses, vanessa bruno, vans pas cher, michael kors, nike blazer, nike free run uk, ugg boots, oakley pas cher, nike air max, coach outlet, hermes, replica handbags, new balance pas cher, true religion outlet, burberry, ralph lauren uk, sac guess, ugg boots, nike trainers, michael kors outlet, abercrombie and fitch, true religion jeans, nike air max, ray ban pas cher, michael kors, michael kors, burberry outlet online, lacoste pas cher, mulberry, michael kors, north face, nike air max, michael kors outlet, tn pas cher
Post a Comment