The Post's front page article on the second quarter GDP numbers tells readers: "There are some big ifs attached to that forecast, however, with the biggest being the fragile American consumer. For a sustained recovery to kick in, expanding production by businesses will need to result in a more steady job market and greater consumer confidence, even optimists acknowledge." This is completely wrong. Consumers are spending at a normal or even high rate at present. The reason that they are spending less than before is that they don't have the money. They have lost close to $6 trillion in housing wealth. This bubble wealth had been spurring consumption and the economy prior to the collapse. Now that it is gone, people are going to spend less. The problem is not bad attitudes. Most people are spending less for the same reason that homeless people don't consume a lot, they don't have the money. In fact, the saving rate was just 5.2 percent in the second quarter, well below its historical average, indicating that people were still consuming at high rates relative to their income. In fact, for the economy to have a sustained recovery, it will have to correct its trade imbalance (which has temporarily improved with the downturn). This will require a sharp drop in the value of the dollar, something that the Post's editors want badly to prevent.
--Dean Baker
