From Robert Samuelson, here’s an odd column in today’s Washington Post. I’m not interested in tackling specifics because Mr. Samuelson seems to offer mostly his own guesses as to the future of spending in America. But he did amuse me with a contradiction.
To say that the shopping spree is over does not mean that every mall in America will close. It does mean that consumers will no longer serve as a reliable engine of growth. Consumption’s expansion required Americans to save less, borrow more and spend more; that cycle now seems finished. Without another source of growth (higher investment, exports?), the economy will slow.
This is an interesting thesis, perhaps. But much later, he offers this:
What can replace feverish consumer spending as a motor of economic growth? Health care, some say. Health spending will surely increase. But its expansion will simply crowd out other forms of consumer and government spending, because it will be paid for with steeper taxes or insurance premiums. Both erode purchasing power. Higher exports are a more plausible possibility; they, however, depend on how healthy the rest of the world economy remains without the crutch of exporting more to the United States.
How is health spending not consumer spending? Economically, is paying a doctor to fix my heart different than paying a mechanic to fix my car’s fuel pump? Both are payment for a service. The importance we apply to the two, as well as demographics in both population aging and car ownership, matters, but not in how we think about spending. In a free market, people will spend on what they value. But people will spend.
Mr. Samuelson’s point that health spending will crowd out consumer spending is strange, coming after he posited that consumer spending is declining. It’s also strange to claim as a blanket statement that higher insurance premiums erode purchasing power. Surely at least some of the risk protection purchased through premiums will be consumed through health spending. How – and how much – does it matter who pays the service provider?
Inevitably that leads to another point. Higher exports are a more plausible possibility. Fine. But to suggest that this is surprising or new requires an unwillingness to define “consumer” as one who consumes rather than an individual who consumes. Does the business creating new products not need equipment to build those products or computers to manage that production? Does the business shipping those products to foreign markets not need trucks and ships? What about packaging material to protect those products during shipment?
It’s possible, maybe even probable, that Mr. Samuelson’s prediction will prove true. It’s problematic because it views specific spenders as the objectively preferable path. It’s better to understand that the economy is large, global, and dynamic. It will change. When allowed to adapt, change will mean long-term progress, despite any short-term bumps. But when viewed as something to be wrapped around a preferred path, problems abound. It’s projecting tomorrow based on yesterday, when every first year finance student
is exposed to learns the idea that past performance does not equal future performance.
Mr. Samuelson concludes that “the ebbing shopping spree may challenge the next president in ways that none of the candidates has yet contemplated.” The economy will always challenge the president in ways not yet contemplated. That’s why the president should avoid meddling.