Consumer Sentiment
This paragraph appeared in the latest Thomson Reuters - University of Michigan Survey of Consumer Sentiment:
Consumer confidence plunged in August as consumers became increasingly convinced that a renewed recession was likely to occur. The majority of households reported worsened finances, expected no income gains, and were more likely to anticipate a rising unemployment rate during the year ahead. Consumers have shifted from being optimistic about the potential impact of monetary and fiscal policies to a sense of despair and pessimism about the role of the government. Never before in the history of the surveys have so many consumers spontaneously mentioned negative aspects of the government’s role in the economy, and never before have consumers rated economic policies so unfavorably.
In addition to Peter Robinson's recent observation that we have no evidence Keynesianism actually works, we have consumers saying with increasing despair that, not only does it not work, but it is making the economic situation worse.
Question: If a majority of consumers feel this way about the President's economic policies, should Republican candidates cite this and other evidence as the "verdict of the people" in addition to their occasional appeals to the empirical evidence?
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Sep '10
Re: Consumer Sentiment
Your question presupposes that economic policy drives consumer sentiment. The view is held both by Keynesians and supply-siders. Do you think it is possible that it is sentiment that drives the economy and in turn economic policy, not the reverse? I find it difficult to view the economy as some mechanical thing that responds predictably to either type of policy. Since no causal relationship can be demonstrated, policy makers a free to choose their antidotal evidence and argue any point of view they wish. I am not arguing that economic policy is not important or that one is not preferable to another, simply that arguing for or against a policy because it will foster a given result is overly simplistic at best.
Nov '10
Re: Consumer Sentiment
"Do you think it is possible that it is sentiment that drives the economy and in turn economic policy, not the reverse?"
Sure.. and under normal circumstances, provided economic policy is not too invasive, consumers don't say much about it or pay much attention to it. But that's the point, economic policy is now incredibly invasive. Rarely does a pundit comment publicly about the economy without mentioning government policy, and consumers have taken notice.
"I find it difficult to view the economy as some mechanical thing that responds predictably to either type of policy."
Perhaps.. but we do have the results of economic history to guide us. Keynesianism has been tried four times in earnest and found wanting each time. The 1930's, the 1970's, and the current era in the U.S., and the past two decades in Japan. 1930's - an extended Depression; 1970's - stagflation; current - anemic growth; Japan - two lost decades now.
Because of the 200 word limitation, countering evidence appears below.
Nov '10
Re: Consumer Sentiment
In 1921, President Harding responded to a downturn by reducing taxes and government spending. Do we ever hear about the Depression of the 1920's? In 1946, the Keynesians told Harry Truman that if he reduced all the government spending (defense) after WWII, the U.S. would be thrust back into Depression. President Truman (God bless him) basically said hooey. Do we ever hear about the Depression of 1946? GDP was negative in '46-47, but hardly anyone noticed because it was government spending that was the big drag while the private economy came roaring back. In 1953 and 1957 President Eisenhower responded to recessions by largely doing nothing. In the early 60's, JFK responded by reducing taxes. Do we ever hear about the Depressions in the 50's & 60's? PM Thatcher responded in 1979 by reducing the growth of government spending, privatizing the "commanding heights" of the British economy, and reducing the regulatory burden. President Reagan responded similarly (excepting privitization) in the U.S., though he also sood behind Chairman Volker in slaying inflation with higher interest rates (the '82 recession). Each time the government got out of the way, the economy came roaring back. Coincidence?
Jun '11
Re: Consumer Sentiment
Copperfield: Never before in the history of the surveys have so many consumers spontaneously mentioned negative aspects of the government’s role in the economy, and never before have consumers rated economic policies so unfavorably.
In addition to Peter Robinson's recent observation that we have no evidence Keynesianism actually works, we have consumers saying with increasing despair that, not only does it not work, but it is making the economic situation worse.
This type of stuff is a reason to be very bullish on America right now.
One, consumer confidence is not really much of a forward looking indicator. Most economists make terrible prognosticators and so do most consumers.
Two, that the public is waking up to these notions is tremendous. It means that the ice is melting on the era of tax and spend.
Dec '10
Re: Consumer Sentiment
This consumer sentiment survey indicates our growing awareness that leftist bitter clingers have sunk so deeply into the folds and sinews of Leviathan they make joeys jealous.
What has “change” been changing most? Business? Or, government?
The weight of appurtenances of the administrative Leviathan, its size, the mass of its attendants, the cost of its sustenance, applies more and more pressure with its constricting grip on our economy while manifesting not the slightest grasp of what to do with it other than to continue to absorb even more initiative out of businesses with its many layers of regulations such that as government expands the economy can only contract.
This process of leaching the private sector value out of our economy, one great statesman, POTUS 40, summarized thus: “If it moves, tax it. If it keeps moving regulate it. When it stops moving, subsidize it.”
The race to the November 2012 deadline consists of how many new dependents government can add to its rolls versus how many businesses will still be breathing by the time we get there.
Sep '10
Re: Consumer Sentiment
Copperfield: As I said policy makers pick their anecdotal evidence and argue the policy they favor. You made some good anti-Keyensian arguments. I.think Keynesian economics is bull. But, lets take the Harding case; In 1921 a lack of confidence led to a downturn. Harding's response was to raise tariffs(taxes) and cut spending. Confidence returned and a recovery began. You argue his actions were responsible for the return of confidence, you are arguing that higher taxes, isolationism, and less spending led to a return of confidence. I would argue that his actions had little to do with the return of confidence. If he had cut tariffs(taxes) and increased spending the same thing may well have happened. Is it possible that something else caused the return of confidence. If so shouldn't that cause be explored?
Nov '10
Re: Consumer Sentiment
"You argue his actions were responsible for the return of confidence, you are arguing that higher taxes, isolationism, and less spending led to a return of confidence."
Well, not exactly. I would argue the tariffs hurt, but likely not as much as the reduction in business & income taxes and government spending helped. The point is the private sector is generally more efficient at allocating capital than government. Hence, when Harding, Kennedy, Reagan, and Thatcher gave resources back to the private sector and took away impediments (taxes, regulations, etc.), growth was accelerated. When Ike did nothing, he allowed the natural process of recessions (wages, prices, & demand falling to equilibrium levels from which they will start growing again) to take its course and growth was restored in short order. When Hoover, FDR, Nixon, Carter, GWB (to some extent), and Obama attempted to use government to help (read: juice demand with government spending), they impeded natural recovery by crowding out private investment with inefficiently politically allocated capital, preventing a natural bottom from being reached.
No, the economy is not a machine that predictably responds, but the transactoins necessary to create wealth can be impeded or allowed.
Keynesianism impedes. Freedom allows/promotes.
Sep '10
Re: Consumer Sentiment
Copperfield: "
No, the economy is not a machine that predictably responds, but the transactoins necessary to create wealth can be impeded or allowed.
Keynesianism impedes. Freedom allows/promotes. · Aug 26 at 2:33pm
I agree with your point on freedom and Keynesianism. What is necessary for wealth creation. Capital, labor and entrepreneurship (a willingness to take risk) Today there is plenty of capital and labor. It is clear the problem is people are not willing to take risk and that is almost always the case. I am not arguing about allocation of capital. I agree with all of your points about it and allocation of capital is important for long term prosperity. But the primary problem in recessions is not allocation of capital, it is the unwillingness of the private sector to take risk. You can put more capital in the hands of the private sector, but if they are not willing to put it at risk all you accomplish is to raise bond, and commodity prices. Has Obama made the current situation worse - yes, but not for the reasons that you note.