White House economic adviser Paul Volcker recommended on Monday that the administration shift priority away from consumers on to public works projects as a mechanism for spurring and sustaining U.S. economic growth.
Consumers accounted for 70 – 75% of the U.S. Gross Domestic Product which annually ranges between $40 – $50 trillion dollars. Mr. Volcker suggest that economic growth move from consumption with its pattern of boom/bust cycles, to one of infrastructure projects (electrical grid, highways, communication), green technologies and exports.
This has sub text from Franklin Delano Roosevelt who enacted several programs under his “New Deal” (1933-1945(3 terms)) administration, creating the public works playbook Mr. Volcker now seems to be reading. FDR used big public works projects to help pull the U.S. out of a long protracted depression/recession (1929 – 1941) where unemployment reached 25% and GDP fell about -29% to the lowest levels in 1933.
By comparison, we are sitting at 9.5% unemployment (nationally) and -12% (aggregated) real GDP from Q3-2008(start of consecutive negative quarterly results) through Q3-2009(first positive (3.5%) number in 5 quarters) according to Bureau of Economic Analysis.
Consumers will play a diminished roll in future growth but only because our spending habits have temporarily changed and will likely remain so for some time. However, we are a consumer driven society and while the recession has slowed growth in our voracious appetite for consumption, the jury is out on whether consumers remain penny pinchers in the long term.
Already there are tremors that would suggest we will once again power the economy yet again with our hard won cash. Maybe the impetus begins with new innovation, maybe it comes from wage growth or downward pricing pressures. Regardless, the American consumer is a live and well, even if they are still a bit apprehensive.
rwhite35