Household consumption, in quality and quantity, is directly tied to the life course of the heads of the household. Consumption and saving vary with each stage of each individual's life course, from setting up the first household with or without a cohabitant, through new households to accommodate families, to new households for empty nesters to reduce domicile size to meet needs and income, to saving for retirement, to the last households. You cannot evaluate the effect of a governmental "stimulus" in stimulating household spending without analyzing the household stages and demographics of consumers. Life course economic analysis is standard fare for scholars; it's not an off the wall suggestion. Taking a simple cross-sectional portrait of amount of spending will not reveal the situational readiness of consumers to spend, on what they need to spend, and on their saving needs.
One over-arching framework for a life-course analysis of consumption readiness and need is the enormous percentage of American households whose wage-earners have been approaching retirement. We have already argued that the extraordinary readiness of these households to accept outsized risk in investment during the dot com bubble era and the housing bubble era was directly related to the need of these boomers, approaching retirement, to build up sufficient nest eggs to support a prolonged retirement (as life spans have increased). What is the situation of boomers now? They have had their retirement investments liquidated in housing and in stock and bond markets. Even boomers in unions with union pensions and in government service with government pensions are facing diminishment of their pensions, as their pensions were similarly devastated; and few people believe everybody else will agree to increased taxes to pay over-promised pensions for union members and government employees. So boomers are re-evaluating their retirement plans in light of this financial debacle. An ultimate life course squeeze. This debacle and the re-evaluation of boomers is the source of the reluctance of boomers to undertake big spending right now.
Another over-arching framework for analysis is the work and career course of generation X households. Their spending is a function of their evaluation of their needs as their children grow up. Their spending is also a function of their evaluation of the job market. And here things don't look good for these households who are not employed in the governmental sector. Wage earners face the possibility of career changes and paying for retraining. They face prolonged unemployment as they maneuver the job market. They face a structurally shifting economy, in which industrial manufacturing is continuing to decline and nonprofessional levels of white collar jobs are being proletarianized. They see a lot of dead ends. They are going to be reluctant to undertake big spending while under the looming shadow of those dead ends.
Enlargment of government will not solve the structural problems for these huge demographic groups, unless we become a communist society in which everybody works for the government and government pays for everyone's health needs, schooling, groceries, housing, and retirement. Such a economic jump, though it might thrill Obama, would only ensure an egalitarian level of poverty for everybody. It didn't work in the Soviet Union; it won't work in the U.S.A. now. These groups--and really all Americans--need a dynamic, growing, private sector, increasing its share of the economy. They need rapidly growing industrial manufacturing; rapidly increasing entrepreneurial activity with lots of small business formation. The problem with Obama and his advisors' and the Democrats' approach to the recession is that everything they are doing damages private job formation. And damages the kind of structural economic shift that the major demographic groups need so they can earn more and feel sufficiently confident about their futures to increase their spending. They will increase their savings, but that is needed to provide investment to fuel private sector growth. None of this will occur, however, if the Obamacrats continue their wrong-headed policies based on inadequate economic understanding of the real economy. Step away from your computer models, guys; step outside the box of Kuznets' accounting, guys. Take a hard look at who the American people are. Please. Before you destroy the economy.
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