The New Economy – Weak and Getting Weaker

The past few years have been tough economically for individuals and for business; even people who never talk about the economy are discussing it with their friends and family.   Why?  Because today’s weak economy is affecting them very negatively and directly, probably for the first times in their lives.   Many of us can probably remember our parents or grandparents talking about what they experienced during the Great Depression of the 1930s or perhaps you learned about it in school.  But hard economic times have a nasty way of not only taking away our financial wellbeing but also our sense of self-worth. 

I don’t want to place any needless pressure on you, goodness knows you probably have enough to deal with but the economy’s health lies directly in your path.  It’s consumer spending that has pushed our economy forward in the past and I don’t see how the dynamics of this economic effect has changed today.  Some economists believe that up to 70 percent of our economic strength is based on how much the American consumer spends at the local mall.  I know that’s difficult to believe but facts are facts. On top of that, consumer spending has been creeping higher as a segment of the total economy sporadically over the past few decades through the assistance by easy credit.  Those days are gone but the need for consumer spending remains.  That’s where we are today. 

If Americans spend – business grows.  It’s that simple.  The problem is consumer confidence has been so weak because millions are out of work, prices at the pump and grocery stores are eating away at disposable income, the U.S. continues to struggle with debt, and the banks aren’t lending.  I know I’m preaching to the choir but what’s it going to take to start moving forward again?  Sadly, there are few options today.

Frankly, about the only thing that has supported our economy recently has been unemployment benefits, which places us in a very miserable state.  A recent report from the Congressional Budget Office revealed that every dollar that is spent from unemployment benefits puts $1.90 back into the economy.   But now Congress is considering cutting that back, as well, which can only exacerbate the situation.  Makes no sense to me.  

Cities and states are going through very difficult times in part because the crumbling housing market has wiped out a good portion of the property tax dollars they had counted on for support before the housing market imploded.  Today, thousands of houses stand empty and do not generate the necessary dollars these government institutions had come to rely upon over the years.  So, even the municipal and state governments are being forced to shrink their employment rolls and services, which has added more pain to an already agonizing situation. 

Other large industrialized nations don’t depend quite so much on consumer spending but rather on government subsidies to keep running.  If things don’t change soon, that just may be what happens in the United States, which will no doubt lead to higher tax rates for all of us.   As an entrepreneur, I am certainly not advocating that but when you examine the total economic package we are dealing with today, there may not be another answer.