Thursday, December 15, 2005

Spendthrift nation?

Kevin Lansing, Senior Economist at the Federal Reserve Bank of San Francisco, recently published Spendthrift Nation (I discovered it thanks to a column by Froma Harrop). It's a not too optimistic look at what's fueling the current US economic situation and what the future might hold.

While pessimists aren't automatically correct (neither are optimists, of course), his graphs and analysis should give us pause. For example, his figure 1 shows personal consumption in the US rising to around 70%. It seems obvious that the value of this ratio must stop climbing—there are natural limits. To the extent the current economic situation in the US is fueled by consumption, we might pay serious attention. Are our businesses relying on increases in consumption as a percentage of GDP for success?

While it may not be time to cancel growth-oriented business plans, it may be prudent to include a scenario in your strategic planning that thinks about a slowdown (or worse) in US consumer spending and real estate markets

Of course, business cycles are a historical fact of life. The trick for all of our companies (and for each of us personally, too), it would seem, is to look at the structures causing those cycles and figure out ways to deal with (dampen?) them most effectively.


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