The low confidence of the Murkin consumer (sung to the tune of Iron Maiden’s “Loneliness of the Long-Distance Runner”)


MAY 28, 2017

There is a paradox at the heart of the US’s lacklustre economy these days. Consumers in America are, according to much-watched numbers like the University of Michiganconsumer survey, more “confident” than they have been in years. And yet they are spending less than they have since the Great Recession.

They are also increasingly skittish. As Starbucks’ executive chairman and former CEO Howard Schultz has told me, consumer spending can collapse at a moment’s notice, particularly on disturbing economic or political news (anything from race riots to terror attacks to populist electoral battles). Sales will eventually rebound as events move on. But as he and other retailers have told me, the US consumer today is “fragile”, likely to close up their wallet more quickly, and open it more slowly, than in the past.
The missing metric that explains all this isn’t economic, but social — it’s about trust. Or more notably, the lack of trust among the general population in what the future will look like, and the ability of elites to manage it. While the Michigan survey tallies with how people feel right here, right now (something that is typically correlated with stock prices), there are other more forward-looking surveys, like the Gallup US Economic Confidence Index, which measure not only how people feel in the moment, but what their expectations are of the future.
Those numbers are significantly more negative, and that’s important, since expectations about the future matter a lot in terms of big-ticket private sector spending. Businesses doing big capital investments, as well as consumers buying homes and cars, are thinking about multiyear time horizons, not the momentary level of the markets.
That’s probably a big reason why the average private sector financial surplus from the end of 2008 until now is 5.31 per cent — a whopping 1134 per cent higher than it was in the five years before the financial crisis. That cash cushion may reflect the imprinting of the crisis itself; as research shows, it’s not only rational to fear such events once you’ve been through them, but consumer behaviour is permanently altered by seismic events — think of the economic optimism of the Baby Boomers, or the children of the Depression, forever reusing tea bags.
No wonder Millennials are saving more as a percentage of income than their parents, and taking longer to make their first home purchases. Not only did they come of age during the financial crisis and Great Recession, but they have to deal with its aftermath in the form of a student debt bubble, decreased wealth prospects (young people who enter the job market in a recession never make up the lost income), and rising rents in the best job markets.
But there’s a broader anxiety about the future, not just on the part of Millennials. Economists such as Robert Shiller have speculated that decreased demand in the economy reflects “vague fears” about long-term employability, given frequent news stories about the robots taking our work (the McKinsey Global Institute estimates that 60 per cent of us will see 30 per cent of our work disrupted by technology in the next 10 years). Many other progressive economists believe that the failures of the neoliberal system itself (which have been chronicled by even the IMF) have created a broad-based existential angst reflected in the new propensity of Americans to save rather than spend.
Like Chinese consumers, whose high savings rates are a reaction to things such as having lived through huge social upheaval, and coping with an inadequate social safety net, Americans seem less sure of the political economy in which they live.
They have plenty of reason to be suspicious, not only because the recently proposed Trump administration budget and healthcare “reform” bill would do away with what little safety net the most vulnerable Americans have. Consider a recent Roosevelt Institute paper showing the stark effect of money on politics, even on the left: for every $100,000 that Democratic representatives received from finance, the odds that they would break with the party’s majority support for the Dodd-Frank legislation increased 13.9 per cent.
As Allianz’s chief economic adviser Mohamed El-Erian puts it: “You cannot underestimate the economic and political effects of the profound loss of trust that the public has had in the core managers of the global system.” Rebuilding that trust would be the best kind of fiscal stimulus. But it will require heavy lifting, and not just in the US. French president Emmanuel Macron, for example, will have to prove that he’s not a business-as-usual neoliberal if he wants to avoid another populist challenge once Europe’s cyclical recovery wanes.
Angela Merkel will have to convince Germans that they should become less German in order to preserve the economic union that has enriched them more than any other EU nation. Economists and policymakers everywhere will have to figure out how to incorporate voters’ understandable concern about the demise of the nation state, the rise of corporate power, and their own economic vulnerability. Indeed, growth itself may depend upon it.
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