Black Tuesday

An October 29th economics puzzle: About 27,000 times on the Internet, it is said that consumer spending accounts for two-thirds of the nation’s economy. My question for this day, the anniversary of the 1929 stock market crash, is “and so?” My hidden desire to have a career as an economics pundit despite never taking an economics course, forces me to ask why this factoid is used by reporters to explain how precariously our economy teeters on the edge of the fickle fingers of non-confident consumers.

When I read this “two-thirds” stat, I wonder if it’s accurate and why I should be concerned. In my opinion, I would rather consumers be responsible for keeping our economy rolling as I imagine about 90 percent of the spending of a typical consumer is non-discretionary. As long as they’re employed (and, logic suggests, as long as consumers spend, the economy will remain robust enough for employment to remain steady) and in possesion of a credit card, they’ll spend. Not on discretionary luxuries, but on the necessities of life. The stuff we buy at Walmart. In other words, of the two-thirds of the economy made up of consumer spending, how much of it really could go away if consumers actually slowed down their spending due to their “lack of confidence”? From personal experience, not as much as one would hope.

  • lcreekmo

    This was bait for me, wasn’t it??

    Almost EVERYTHING one buys at Wal-mart is discretionary. Here’s what’s not [some of which aren’t available at Wal-mart]:
    Utilities & rent
    A few sets of clothes

    Discretionary spending includes stuff like:
    School supplies
    Lawn care items
    Most health & beauty items
    Most clothing purchases
    Snacks & lots of food purchases

    The stuff in that second group is what America keeps charging…the consumer spending. It is discretionary, but no one seems to show much discretion. Whether we should or not is a different debate. It depends on how you feel about the trade deficit and our nation’s personal savings rate, to a certain degree.

  • Rex Hammock

    Laura asks, “This was bait for me, wasn’t it??”

    Yes, Laura. Everything here is bait. And very discret.

    As for the balance of trade, my total lack of economics training helps me understand that the balance of trade, like the “budget deficit,” has very little to do with the performance of the U.S. economy. I came up with my budget deficit theory after living through a couple of decades of economic growth despite massive federal budget deficits. The balance of trade theory hit me once with I was driving between Tennessee and Alabama and realized that one of the two states had a trade inbalance with the other one and it had little to do with the economic health of either…they both were equally bad, or good.