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  • James Surowiecki on China's 'Consumption Problem'

    In the latest Financial Page column at The New Yorker , James Surowiecki takes a look at consumption in China. The worlds's most populous nation has developed a reputation for thrift to the extreme. He estimates that Chinese households and institutions sock away $2.5 trillion a year. And consumption is just 35% of GDP--"significantly lower than for most Asian countries and only half the rate in the United States," Surowiecki writes. But it hasn't always been this way in China: One common explanation for this thrift is that it’s the product of “Confucian values.” Yet China has not always been so thrifty—in the eighties, consumption was more than fifty per cent of G.D.P.—and today other “Confucian” countries consume far more than China does. The real source of China’s underconsumption is the way it manages its economy. Credit isn’t always that easy to come by. China’s policy of holding down the value of its currency means that consumer prices are higher than they would otherwise be, which obviously discourages spending. And, as a recent McKinsey Global Institute study points out, once you move beyond China’s biggest cities, there’s often a dearth of retail outlets and products for sale. Potential spenders are also held back by systemic issues. Paradoxically, in this still putatively Communist society, families for the most part have to fend for themselves. Health insurance is limited in what it covers and far from universal, so getting sick can be a costly proposition. Only a fraction of the workforce receives unemployment benefits, while pensions are underfunded and haphazardly administered. A scarcity of student loans and subsidies for higher education, meanwhile, means that paying for college requires hefty savings. The inadequacy of the social safety net forces the Chinese to engage in “precautionary savings,” buffering themselves against disaster. A recent Brookings Institution study attributes much of the increase in household savings to the rising cost of health care, together with that of housing and education. Read The Frugal Republic here .
  • A Look at Consumer Spending--1990-2009

    As a good follow to yesterday's post about consumer debt and saving, we thought this chart from NPR's Planet Money . It shows personal consumption from 1990 to the first quarter of 2009. A steady climb all around. And while the consumption of both durable and non-durable goods is dipping so far this year, spending on services keep rising (though at a slower rate). Read the Planet Money post here .
  • Are You Spending Less? Where are you Cutting Costs?

    The Bureau of Economic Analysis has released data on personal consumption expenditures--what Americans spend on goods and services--over the last year. While Americans increased their consumption from December to January, the overall trend of the last year was to spend less. A lot less. In looking at the specific areas of spending from January 2008 to January 2009, Michael Mandel , chief economist for Business Week, was surprised by the second leading category: In real terms, Americans are spending $164 billion less (in 2007 dollars) in January 2009 compared to January 2008. Out of that, $112 billion is user-operated transportation--purchases of cars and trucks, and spending on gas and oil. But another $56 billion of decline came from food! That is to say, adjusted for inflation, real personal consumption of food fell by $56 billion. That's the second largest contributor to the decline in personal consumption. Number 3, clothing, was only $18 billion down. Mandel goes on to speculate that the rise in the cost of food last year helps explain why Americans are cutting back there, and that , perhaps, the "incessant public drumbeating about 'fat Americans'" has some effect. Read Mandel's full post here . We want your stories. Odds are you are spending less. So here are three questions: 1) Where are you cutting back (what goods or services are you spending less on)? 2) What was the event or piece of news that prompted you to cut spending? 3) Why did you decide to cut back where you did? Click on comments at the top of the post and share your answers.