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An Undertow of Underconsumption
Published on Friday, December 28, 2001 by Common Dreams
An Undertow of Underconsumption
by Seth Sandronsky
 
Swimmers know. In the water at the beach, an undertow can drag them down. In business, a lack of buying power can drag sales down. Then workers lose jobs. Congressional Democrats and Republicans appear not to understand these economic connections.

The economic stimulus plan that just bit the dust in Congress is a case in point. It really fell flat for Americans having a hard time making ends meet during a recession that officially began last March. Congress claims to represent the American public, which experienced a November unemployment rate of 5.7 percent, the highest level in more than six years.

“Even more important than the rate of unemployment is how quickly it rose,” said James Devine, a political economist at Loyola Marymount University. On a related note, consumer spending dipped 0.7 percent in November. "The fall in consumer spending is part of what I call an underconsumption undertow," he said.

In America and around the world, workers are struggling to buy what they have made for sale on the market. In a sense, the market system has worked too well. The share of income going to profits has increasingly flowed upward, away from the laboring majority. Inequality of income distribution is a recurring feature of the system, engulfing foreign nations in the past decade and the world before the Great Depression, Professor Devine noted.

How has the U.S. economy grown in spite of the 1990s version of the underconsumption undertow? According to Professor Devine, the growth was due mostly to borrowed money. That helped America avoid the undertow affecting other national economies—temporarily. "Over-borrowing eventually helps to drag the economy down," he said.

To be sure, there are limits to credit-driven consumption. Unemployment is one way to put the brakes on borrowing. Yet the slowdown doesn’t happen overnight. U.S. consumers increased their debt by about $250 billion over the last year, according to the Dec. 22 New York Times.

Some of that consumer debt overhang is from luxury spending. This is the socio-economic class that has lived well, thanks partly to the overvalued stock market. A successful few parlayed their good fortune in financial speculation to buy more high-priced cars, jewelry and houses. More recently, however, the bloom has left this stock market rose. Share prices have fallen, yet the debts from the lavish spending sprees remain.

At the same time, less-fortunate Americans have used credit differently. They have gone into debt for necessary items such as clothes, food and health care. They are the group of people with no investment income, a paycheck away from material hardship. Many are the so-called working poor whose low wages can drive them to food banks. The U.S. Conference of Mayors recently found that 25 of 27 cities surveyed had an average 23 percent rise in requests for emergency food assistance during the past year.

Currently, the American economy is shifting to slow/no growth. It shrank 1.3 percent in third-quarter 2001. The American economy, roughly two-thirds of which is consumer spending, is situated at the center of the world system. The International Monetary Fund recently said that prospects for global growth in 2002 are dismal. The point?

The recession’s effects are national and global. Consider one example involving the American worker/consumer. When s/he is under- or unemployed, consumer spending on imports to the U.S. is depressed. This, in turn, hurts foreign workers whose jobs depend on Americans’ consumer spending.

Well, Congress returns to work next month. Will it sing a tune of fiscal bipartisanship for Americans who need the federal government to help keep them economically afloat? Or will the Democrats and Republicans on Capitol Hill still ignore this part of the undertow of underconsumption?

Seth Sandronsky is an editor with Because People Matter, Sacramento’s progressive newspaper ssandron@hotmail.com

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