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Jodie Allen: How’s That Again?

July 12th, 2009, 12:07 am admin Leave a comment Go to comments

“Tumbling price of oil helps stocks end day down,” read the business headline on MSNBC.com on Tuesday, a warning repeated in another Associated Press story on Friday.

Gee that’s funny. I used to think that falling oil prices were good for the economy. After all Americans buy (and increasingly import) a lot of gasoline so that rising prices are a real hardship for both consumers individually and for the larger economy. Don’t I recall that less than a year ago economists and business commentators were wringing their hands about how soaring oil prices were threatening economic growth and posing challenges to presidential candidates?

And here’s another seemingly upside-down concern. “Consumer credit outstanding continued to fall in May…which continues to drag on the economy,” worried the Wall Street Journal on Thursday. Come again? Wasn’t the fact that American consumers have been borrowing and spending their way into financial oblivion in recent years a major cause of the current economic collapse? Wasn’t the unprecedented string of negative savings rates much deplored by financial experts? Didn’t we want the U.S. public to stop spending beyond their means and start saving?

It’s not that the stock traders and business analysts don’t have grounds for these apparent 180- degree shifts in their preferences. Falling oil prices do indeed drive down energy company stocks, just as rising prices sent them soaring in recent years. Of broader consequence, if the price decline reflects falling industrial and consumer demand it may well signal continuing economic weakness.

And given that our economy has become so dependent on credit-financed consumption, any indication that consumers are finding it hard to borrow — or even losing their taste for red ink — clearly spells further trouble for already weak housing markets and shopping malls.

Well OK, but let us not lose sight of the longer-term — I don’t mean decades, the thought of which, I understand, glazes over the average American at the mere mention. But maybe till the end of the year at least. The fact is that if we as a nation, not to mention all the other countries that wisely or foolishly have cast their lot with our economic fortunes, are to get back on a sounder footing, we have to stop spending beyond our means. And we have to start making more of what we buy instead of depending on the short-term kindness of strangers to lend us the money, never mind the long-term ultimate cost. And maybe then the economic news won’t seem so [anatomical expletive deleted]-backward.

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