On Thursday's Fast Money, Rob Cox of BreakingViews.com offered up the following thoughts, paraphrased closely:
As a country, we're producing too little and consuming too much. Obama's going to have to be upfront with the American people about that, and correcting the imbalance might mean that we have to accept a lower standard of living.
We think we know what Cox means here, but let's dig into this a little bit.
First, we've long thought "standards of living" aren't easily captured by, or accurately reflected in, consumption data. Individuals' quality of life goes well beyond the number of cheap Chinese goods they buy, or the marginal 400 square feet in their homes. But it's certainly true that relative wealth can buy relative comfort, and thus, in some sense, a higher standard of living: less concern about day-to-day and month-to-month finances, more leisure time, more (and more attractive) employment/retirement options.
But the bigger point here is that the only reliable path to a better standard of living, no matter how we define it, is through a sequence leading from savings to investment to higher productivity to gains in real wealth. We simply must spend less and save more. As we've written here before, and as Rob Cox noted last night, that means significant short-term pain. We can't borrow our way to prosperity.* So here's hoping this economic mess prompts the utterly necessary and long-overdue process of repairing private and public balance sheets in the United States.
The other key to national well-being, and an under-noticed cause of Barack Obama's political success, is the distribution of the country's gains in real wealth. Is it any surprise that rank-and-file Americans were fed up with the status quo after several years of zero gains in their real incomes? This isn't about class rivalry or redistribution; it's about enlightened self-interest.
* Not all borrowing is created equal, of course. Student loans, for instance, can greatly enhance one's future wealth. Using revolving credit to buy more stuff? Not so much.