Shrinking Consumers

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Al's EmporiumP

AL'S EMPORIUM June 16, 2012, 8:25 p.m. ET
Shrinking Consumers

Somebody is always pontificating about economic growth.

Sometimes they'll observe economic growth is slowing. Sometimes they'll be forced to concede that economic growth is anemic. In rare periods, after recessions have been officially recorded, they'll admit that, yes, economic growth did turn negative, but it was only for a short while, and now we're back to positive economic growth.

Nobody ever says economic shrinkage. America must always deliver economic growth.

We have a Federal Reserve that is supposed to perpetuate this growth bias, propping up banks, private corporations and even the stock market with ever-lower interest rates. We have leaders in Washington who rack up trillions of dollars in debt each year, trying to accomplish the same thing.

Economic shrinkage remains the unspoken fact of life anyway. If you put tepid economic growth on one side of the ledger and trillions of dollars of debt on the other, what else can you expect?

Last week, the Fed came out with its latest Survey of Consumer Finances, for the years 2007 through 2010. It showed the median net worth of U.S. households shrank 38.8% during this period, from $126,400 to $77,300. This is the lowest it has been since 1992.

America worshiped economic growth for years, and deployed economists to preach it, but when the gap between economic religion and economic reality finally closed, 18 years of gains were erased from the ledger.

You don't need to read the Fed survey to know why this happened. The value of your home plummeted. Your savings were invested in plunging stocks and mutual funds. You can't make anything off a bond or a CD. If you own a business, it's likely worth less, and generating less income. If you have a job, you are likely making less at it, or working harder to keep from making less or losing your livelihood altogether.

Almost every demographic group has suffered shrinkage, the Fed survey shows, but middle-income, middle-aged, middle-wealth folks shrank the most.

Remember the adage about consumers driving 70% of the U.S. economy? How can anyone credibly claim the U.S. economy is growing when the U.S. consumer keeps shrinking?

Europe's crisis is now slowing growth at U.S. companies and crushing hopes for a growing stock market. The unemployment rate just took an unexpected uptick. Banks, having resolved many of their foreclosure processing problems, are now working on a fresh batch of foreclosures. Washington is gridlocked as a presidential election looms. Gasoline prices, while not matching the frightening prediction of $5 a gallon, remain stubbornly high.

Four years after our economic crisis, economic shrinkage is still silently taking a toll.

In the 1957 sci-fi classic "The Incredible Shrinking Man," a businessman on a boat passes through a toxic, radioactive fog, similar to what our global economy passed through in 2008. From there, it takes quite some time for him to notice that he is inexplicably shrinking. It is to his advantage when he finally embraces this inescapable fact, because he eventually has to battle his own cat, and then, as he turns ever-smaller, he must face off with a bloodsucking spider.

The film ends with the suggestion that he will eventually shrink down to the size of an atom. The good news is, he now consumes less to survive. He also loses all fear about his future when he decides that no matter how small he becomes, he will still somehow matter, or at least be matter, in the universe.
—Al Lewis is a columnist for Dow Jones Newswires in Denver. He blogs at tellittoal.com; his email address is al.lewis@dowjones.com