Can Increased Demand Save the Economy?

Progressive economists have been bewailing the slowdown in demand since soon after the onset of the recession.  According to these economists, low demand is what ails the American economy, and the only cure is for the federal government to spend trillions of borrowed or newly printed dollars to spur demand, which will boost employment and turn the economy around. 

That's the theory, anyway.  It's the progressives' answer to supply-side economics, a.k.a. Reaganomics: Just get demand up and everything will be fine -- the workingman will get work, the American businessman will get business, and the progressive economists will get vindication for their theories.  Economist Robert Reich writes:

All this translates into a continuing crisis on the demand side. Consumers can't and won't buy more. Between January and March, sales grew just .15 percent around the country -- perilously close to no growth at all. May sales look even worse. Chain stores are reporting weaker sales. Consumer confidence has dropped sharply. How to get jobs back, then? By reigniting demand.

Not long ago, Americans were regularly chided for their abysmal savings rate.  For a while our savings rate was actually negative.  We were told we needed to be more like Asians, who are serious savers.  We spent too much, consumed too much; one might even say demand was too high.  And now the experts tell us we're not spending enough. 

But when it comes to whether they spend or save their money, folks will do what they think is right for them, not what some tenured radical thinks they should do to correct the flagging economy.  They're not going to dine out just because cooks, waiters, and busboys need jobs.

Many Americans have decided to change gears, to ratchet back, to live lower on the hog -- in a word, to "economize."  That's rational, and it is part of the reason demand is down.  If Americans dine out less frequently, take fewer vacations, and generally spend less, that's their business.  If their behavior is the direct opposite of a government that spends like there's no tomorrow, then maybe it's the government that needs to change.  Maybe the government needs to be more like the people. 

We got in our current economic mess by doing exactly what progressives want us to continue doing; their solution to over-consumption is over-consumption.  Progressives, however, might tell America exactly what they think we need to be consuming more of, because they seem to be urging demand for demand's sake.  But many Americans already have enough stuff.  That's what a big part that spending since the Great Depression was all about, accumulating stuff.

Right now the American consumer isn't in the mood.  She's been hit with a spike in inflation for essentials, and is more apt to spend her money on food and fuel than on the non-essentials that make up so much of the economy.  Or perhaps she'll just save her money, which is what American business is doing.  So Americans must brace themselves for the possibility that low demand will continue. 

However, in certain sectors of the economy there hasn't been much of a slowdown in demand.  Folks are still demanding essentials; the demand for essentials doesn't go away.  So we might adjust to a new era of lower demand for non-essentials by producing more of our own essentials, rather than importing them.

Not long ago I had need of another bandana to keep my red neck from getting any redder.  So I traipsed over to the local big-box store, assuming that I would find a bandana that proudly carried the "Made in America" seal of approval.  But I soon discovered that my bandana was now made overseas.  This country can't even manufacture a simple square foot of cloth anymore.  We have to have Asians make it and ship it across the Pacific, burning up precious fossil fuel in transit.  We don't make our own apparel, shoes, consumer electronics, infants' toys, and on and on.  Yet, millions are out of work. 

If America were importing 100 percent of her food, we'd be pretty nervous, right?  But we seem to be blasé about importing huge shares of other essentials.  The way out of our economic dead end is to start producing our own essentials.  We need venture capitalists for start-ups in manufacturing.

But progressives are clueless about real business in the real world; Robert Reich seems to think that all that is needed is to "put more money in consumers' pockets." 

Progressives think that all the feds have to do to create jobs is get more money into circulation and it will find its way to the girl making lattes who will then spend it on getting her nails done by the girl who will invest it in a new tattoo and so on and so forth until the money ultimately gets into the hands of unionized government employees who will march into Starbucks and demand a grande latte with sprinkles thereby reinitiating the cycle ad infinitum.

But if folks are spooked by what's coming, they will forego lattes, manicures, and tattoos and sit on their money.  And since their money isn't earning any interest in the bank right now, they might even pay down their debt, especially their mortgage. 

On Broadway they call them "angels": venture capitalists who make bets that folks will like some new show.  We need angels to make bets on the rest of the American economy, especially the production of essentials.  And there's already a "Made in America" market out there.  I myself get my jeans at Target, because the Legendary Gold brand is made in the U.S. of A.  (And at $10, they're the cheapest new jeans around.)

Robert Reich can't open his mouth lately without talking about demand.  But isn't one of the reasons for this lingering recession the fact that demand was unreasonably high for far too long?  One day I hope to hear folks proudly proclaiming: Here in America, we make the best damn bandanas in the world. 

POINTER: John Stossel ran part of this clever, entertaining video on Fox Business, and it distills the big debate in economics.  Try it; you'll like it.

Jon N. Hall is a programmer/analyst from Kansas City.

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