Ben Stein said on Larry King’s television show the other night that the U.S. economy is in good shape. He argued that since the unemployment rate was 5.5 percent, then 94.5 percent of Americans must be employed. And since only a small proportion of the population is in foreclosure, then the vast majority of Americans must be paying their mortgages on time.
If you know Ben Stein, you know he will say just about anything to get noticed. A self-confessed nerd during his school days, he just can’t stand being ignored. I think psychologists call it compensatory behavior. So why would Larry King interview him? King’s ratings must be slipping.
The sad part of it is that Stein is not some ignoramus off the street. He graduated from Columbia University in 1966 with honors in economics, and he was valedictorian of his 1970 Yale Law School class. So, when a commentator with his credentials says the economy is just fine, thank you, somebody needs to set the record straight. And since I’ve decided to set everybody straight about everything, I’ve accepted the task.
A survey of two dozen countries, conducted this spring by the nonpartisan Pew Research Center, found a growing despondency over the international economy, with majorities in 18 nations calling domestic economic conditions poor. The U.S. was included in the survey.
And contrary to Stein’s interpretation, the despondency is justified. The U.S. Labor Department reports that the country lost 49,000 non-farm jobs in May. That followed a 28,000 decline in April, and it could push the U.S. toward a recession. It’s not just that people who lose their jobs don’t have as much money to spend; there’s also a cooling effect on the people who still have jobs. They wonder if they’re next, and they tighten their purse strings.
In today’s world, that kind of perception is a key economic factor. It used to be that economies were built on what you produced, how much wheat you harvested, how much gold you mined, how many tractors your factories rolled out. Now, the United States economy lives or dies on how much Americans consume. It’s crazy, I know, and I can’t explain it, but it is what it is, and we have to live with it. One day, perhaps far in the future, someone will have to pay the tab for all this consumption, but we hope it won’t be in our lifetime.
When the American consumer stops spending, the world economy feels it. Japanese car manufacturers, Chinese shoemakers, Latin American banana growers, wood carvers in the jungles of Peru… They all depend to a large extent on the mighty American market. They produce, Americans consume, and that makes the world go ’round.
That’s a simplified view, of course. The rest of the world does their share of consuming, especially now that a billion Indians and a billion and a half Chinese are entering the fray. But Americans are still the most voracious consumers, and when they lose their appetites, it spells trouble for the global economy.