• Introduction
• Objectives
• Readings & Articles
• Lecture
• Global View
• Assessment

Lecture

In April 2005, Fortune magazine ran a commentary titled We're a Nation Helpless to Save Ourselves: Living beyond our means hasn't caught up with us-at least not yet. The article points out that compared to other developed countries, our savings rate, national debt, and trade deficit all point to an American ethos of instant gratification over implementing policies to protect America's and the world’s economic future. One fifth of the world’s population consumes 4/5 of Earth’s resources. That means your poorest American is still better off than 80 percent of the human beings on Earth. In 2005 and 2006, the savings rate in the United States was negative (the first time since the depression), meaning people spent more than they earned.

How many planets do you require? Take this online survey to determine how many "Earths" would be needed if everyone on earth lived your lifestyle. Click the "Play" button to begin the quiz. Your average American consumes five more times than a Mexican, ten times more than China, and 30 times more than an Indian. Europeans and Japanese also consume at levels close to Americans but no country can match the amount of “stuff” Americans consume. This is no secret: many Americans take pride in the fact that we can buy lots of stuff. This is not a required assignment; however, if you do complete it, please post your results to the class chat room.

Spending is, as it seems, a necessity to the American Economy.

In 2007, the U.S. gross domestic product (GDP; the value of all goods and services domestically produced by a country) showed that 39 percent of our economy was based in industry, with agriculture making up eight percent and services making up 54 percent.  Not to complicate the matter, but roughly half of the “services” sector of the economy is made  up of the sale of goods made in other countries.  When Walmart sells you something made in China that “service” adds money to our economy.  At the end of 2007, this selling and buying of goods (in GDP lingo, personal consumption expenditures) made up 70 percent of our GDP.  (If you’d like to see what American’s spend their money on click here for an interactive table by the U.S. Bureau of Economic Analysis, U.S. Department of Commerce.)

Because so much of our economy is structured around the selling of goods, we often find that our government needs to support banking (credit issuers) and manufacturing business in the U.S. to avoid recession or depression.  We saw this in 2008 when banks began to fail; our financial sector began to fail due to the over issuing of mortgage loans (sub-prime mortgages).  To stimulate the economy, banks were given bail-outs to re-establish credit markets, allowing businesses and people to borrow money again.   Credit meant more spending, or a return to previous spending trends with the possibility of increased spending.  The other sub-sector to receive huge bail-outs was the car manufacturing.  Of the approximate $10 trillion we spent in 2008, we spent $754 billion on our cars:  motor vehicles and parts ($343 billion) and gasoline ($411 billion).  Our government believed that helping the car manufacturing industry would prevent further economic recession. 
  
The lesson learned:  We saw how an economy so heavily based on selling goods to consumers could easily become destabilized.  It took $700 billion from the Troubled Asset Relief Program in 2008 and another $787 billion in fiscal stimulus dollars in 2009 to stabilize the U.S. economy.  Most of this has been paid back.  In 2011, while done somewhat quietly, the U.S. government also announced the purchase of $600 billion worth of U.S. Government bonds to prevent interest rates from increasing and possibly slowing the recovery.  While the U.S. still maintains the highest GDP of the world at $14.72 trillion (in 2010), analysts continue to emphasize that a robust economy based more on services and fewer-higher quality goods could also support the country.  (If you’d like to learn more about the GDP during the 2007-2010, the recession and beginning of the recovery efforts click here.)