I’m not an expert at economics — neither micro-economics nor macro-economics. In fact if anything, I’m slowly and steadily developing the belief that no one really understands the economy, and especially not the overpaid people who run this nation’s, and increasingly the world’s financial system.
I’ve often wondered about the disconnect that exists between the individual and the nation when it comes to economic policies and measures. As an individual, it is in your own personal self-interest to live within your means. While I was growing up (in India), credit for individuals was more or less unheard of. What was more common was “saving” — if you wanted to buy something, you would have to save up enough to make that purchase. Now I’m not arguing that that is the best approach, but a balanced approach is what I am arguing for.
By contrast, at the macro-economic level, the problem you hear the economists talking about is that “Consumer spending” is down and that has a trickle down effect on the economy — well, it does. But, should boosting consumer spending really be the way to improve the economy? Isn’t that at odds with the common sense of what is good for the individual!
In fact given the current supply chain in the US, boosting consumer spending will not necessarily stimulate the US economy as much as it will stimulate the Chinese economy. The current crisis has shown that the global economies are so tightly intertwined that that may indeed be what is necessary at a global level. Apparently, China reinvests all the excess dollars it earns into the US economy by buying up US treasuries, bonds and stocks and that is what makes money readily available in the US. If China stops buying up US assets with their surplus dollars, the US would be in even bigger credit/cashflow trouble.
Paul Kedrosky (@pkedrosky) wrote a great article titled: Watch out, world: Americans are saving again (hat tip to @timoreilly for the link). Having read this article and having recently watched I.O.U.S.A (highly recommended) I am pleased to see that Americans may be saving more again — it’s what they should have been doing in the first place. But that American’s saving again will have a adverse effect on the global economy just means that the micro and the macro are not working to reinforce each other, but against each other.
To summarize this post, in essence, I feel that there is a huge disconnect between “what is good for the individual” vs. “what is good for the United States” vs. “what is good for the global economy” and until these differences can be reconciled and the interests aligned, I fear that we will be pulling in the wrong directions.
