sexta-feira, 28 de novembro de 2008

Stephen S. Roach: Dying of Consumption

Dying of Consumption

by Stephen S. Roach, Op-Ed Contributor, New York Times, Hong Kong, November 28, 2008
August Heffner

IT’S game over for the American consumer. Inflation-adjusted personal consumption expenditures are on track for rare back-to-back quarterly declines in the second half of 2008 at a 3.5% average annual rate. There are only four other instances since 1950 when real consumer demand has fallen for two quarters in a row. This is the first occasion when declines in both quarters will have exceeded 3%. The current consumption plunge is without precedent in the modern era.

The good news is that lines should be short for today’s “first shopping day” of the holiday season. The bad news is more daunting: rising unemployment, weakening incomes, falling home values, a declining stock market, record household debt and a horrific credit crunch. But there is a deeper, potentially positive, meaning to all this: Consumers are now abandoning the asset-dependent spending and saving strategies they embraced during the bubbles of the past dozen years and moving back to more prudent income-based lifestyles.

This is a painful but necessary adjustment. Since the mid-1990s, vigorous growth in American consumption has consistently outstripped subpar gains in household income. This led to a steady decline in personal saving. As a share of disposable income, the personal saving rate fell from 5.7% in early 1995 to nearly zero from 2005 to 2007.

In the days of frothy asset markets, American consumers had no compunction about squandering their savings and spending beyond their incomes. Appreciation of assets — equity portfolios and, especially, homes — was widely thought to be more than sufficient to make up the difference. But with most asset bubbles bursting, America’s 77 million baby boomers are suddenly facing a savings-short retirement.

Worse, millions of homeowners used their residences as collateral to take out home equity loans. According to Federal Reserve calculations, net equity extractions from United States homes rose from about 3% of disposable personal income in 2000 to nearly 9% in 2006. This newfound source of purchasing power was a key prop to the American consumption binge.

As a result, household debt hit a record 133% of disposable personal income by the end of 2007 — an enormous leap from average debt loads of 90% just a decade earlier.

In an era of open-ended house price appreciation and extremely cheap credit, few doubted the wisdom of borrowing against one’s home. But in today’s climate of falling home prices, frozen credit markets, mounting layoffs and weakening incomes, that approach has backfired. It should hardly be surprising that consumption has faltered so sharply.

A decade of excess consumption pushed consumer spending in the United States up to 72% of gross domestic product in 2007, a record for any large economy in the modern history of the world. With such a huge portion of the economy now shrinking, a deep and protracted recession can hardly be ruled out. Consumption growth, which averaged close to 4% annually over the past 14 years, could slow into the 1-2% range for the next three to five years.

The United States needs a very different set of policies to cope with its post-bubble economy. It would be a serious mistake to enact tax cuts aimed at increasing already excessive consumption. Americans need to save. They don’t need another flat-screen TV made in China.

The Obama administration needs to encourage the sort of saving that will put consumers on sounder financial footing and free up resources that could be directed at long overdue investments in transportation infrastructure, alternative energy, education, worker training and the like. This strategy would not only create jobs but would also cut America’s dependence on foreign saving and imports. That would help reduce the current account deficit and the heavy foreign borrowing such an imbalance entails.

We don’t need to reinvent the wheel to come up with effective saving policies. The money has to come out of Americans’ paychecks. This can be either incentive driven — expanded 401(k) and I.R.A. programs — or mandatory, like increased Social Security contributions. As long as the economy stays in recession, any tax increases associated with mandatory saving initiatives should be off the table. (When times improve, however, that may be worth reconsidering.)

Fiscal policy must also be aimed at providing income support for newly unemployed middle-class workers — particularly expanded unemployment insurance and retraining programs. A critical distinction must be made between providing assistance for the innocent victims of recession and misplaced policies aimed at perpetuating an unsustainable consumption binge.

Crises are the ultimate in painful learning experiences. The United States cannot afford to squander this opportunity. Runaway consumption must now give way to a renewal of saving and investment. That’s the best hope for economic recovery and for America’s longer-term economic prosperity.

Stephen S. Roach is the chairman of Morgan Stanley Asia.

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sábado, 8 de novembro de 2008

Bob Herbert: Take a Bow, America

Take a Bow, America

by Bob Herbert, New York Times, November 8, 2008

The markets are battered and job losses are skyrocketing, but even in the midst of a national economic crisis, we should not lose sight of the profound significance of this week and what it tells us about the continuing promise of America.

Voters said no to incompetence and divisiveness and elbowed their way past the blight of racism that has been such a barrier to progress for so long. Barack Obama won the state of North Carolina, for crying out loud.

The nation deserves to take a bow. This is not the same place it used to be.

Election night brought a cascade of memories to Taylor Rogers, who is 82 and still lives in Memphis, where he grew up. He remembered a big crowd that jammed a Masonic temple in Memphis on an April night 40 years ago.

“It was filled with people from wall to wall,” he said. “And it was storming and raining outside.”

The men and women, nearly all of them black, were crushed against one another as they listened, almost as one, to the Rev. Dr. Martin Luther King Jr. give his final speech.

Mr. Rogers was one of the sanitation men whose strike drew Dr. King to Memphis. In the aftermath of the Obama victory on Tuesday night, he recited from memory the climactic phrases from the speech, the part where Dr. King said that God had allowed him to go up to the mountain and that he had looked over and seen the promised land.

“I remember it so well,” said Mr. Rogers. “Dr. King told us: ‘I may not get there with you. But I want you to know tonight that we, as a people, will get to the promised land.’

“You could tell from the words and from the expression on his face that he really felt that something was about to happen.”

The next day, of course, Dr. King was killed.

Like so many other older African-Americans that I spoke with during this long, long campaign season, Mr. Rogers said he never dreamed that he would live to see a black person elected president of the United States.

“A black president in the White House?” he said. “In those days, you wouldn’t even have thought about going to the White House. Not unless you were a janitor or something.”

It can be easy in such a moment of triumph to lose sight of the agony wrought by the unrelieved evil of racism and to forget how crucial a role anti-black racism played in shaping American life since the first slaves were dumped ashore 400 years ago.

Blacks have been holding fast to the promise of America for all that time. Not without anger. Not without rage. But with a fidelity that in the darkest moments — those moments when the flow of blood seemed like it would never stop, when enslaved families were wrenched apart, when entire communities were put to the torch, when the breeze put the stiffened bodies of lynched victims in motion, when even small children were murdered and Dr. King was taken from us — even in those dire moments, African-Americans held fast to the promise of America with a fidelity that defied logic.

The multiracial crowds dancing with unrestrained joy from coast to coast on Tuesday night were proof that the promise of America lives — and that you can’t always hang your hat on logic.

You knew something was up when the exit polls revealed early Tuesday evening that Senator Obama had carried the white working-class vote in Indiana, one of the reddest of the red states and a onetime stronghold of the Ku Klux Klan.

I got a call on Friday from David Goodman, whose brother Andrew was one of three civil rights workers slain in the searing racial heat of Mississippi in 1964.

“It’s shocking, isn’t it?” he said of the election.

I agreed.

“It’s wonderful,” he said.

Arthur Miller liked to say that the essence of America was its promise. In the darkest of the dark times, in wartime and drastic economic downturns, in the crucible of witch hunts or racial strife, in the traumatic aftermath of a terror attack, that promise lights the way forward.

This week marked a renewal of America’s promise. Voters went to the polls and placed a bet on a better future, handing the power to an unlikely candidate who promised to draw people together rather than exploit their differences.

The final tally wasn’t close.

We still have two wars to deal with and an economic crisis as severe as any in decades. But we should take a moment to recognize the stunning significance of this moment in history. It’s worth a smile, a toast, a sigh, a tear.

America should be proud.

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