In the Morning Edition top of the hour news summary (not on web), NPR told listeners that car sales are down because of low consumer confidence. Wrong! Car sales are down because consumers have seen $6 trillion in housing bubble wealth and have also seen around $8 trillion in stock wealth disappear. The reduced spending is the result of reduced wealth. Consumers need to rebuild their wealth, hence they are not buying things like cars. The impact of wealth on household consumption is a well-studied economic relationship. NPR's reporters should be familiar with the concept. This matters because happy talk will not get people to start buying cars again. The problem is much deeper.
--Dean Baker
