Home > Articles > Business & Management > Global Business

  • Print
  • + Share This
This chapter is from the book

The American Consumer's Roller Coaster

As previously shown in Exhibit 1.1, the American consumer is by far the largest driver in the GDP Growth Equation. In fact, in developed countries such as the United States, the European nations, and Japan, personal consumption expenditures typically account for fully two-thirds of economic activity. That's why a strong consumer with robust purchasing power is critical to any long-term American recovery.

Right now, the American consumer is anything but strong and robust. A large part of the problem is a frayed and tattered household "balance sheet" that remains as a leftover from overconsumption during much of the last decade. It was precisely this pattern of overconsumption (and a collateral low level of saving) that helped fuel America's housing bubble and eventually helped trigger the consumer-led 2007–2009 crash.

In fact, much of the overconsumption that occurred during the past decade was driven not by rising income and wages but rather by rapid home price appreciation. As housing prices rose during the bubble years, millions of Americans relied more and more on the black magic of mortgage refinancing for their spending needs rather than on rising wages and income.

By refinancing their mortgages and removing equity from their homes in the form of cash payouts, consumers effectively turned their homes into automatic teller machines. Collectively, this "house as an ATM" phenomenon provided a tremendous short-term consumption boost to the economy.

However, with consumers spending beyond their means and stretching their balance sheets, that kind of economic boom would inevitably go bust. Once the housing bubble burst, the "house as an ATM" consumption stimulus for the economy went into reverse, and consumption spending slowed dramatically.

Today, as the American economy attempts to resume its robust long-term growth pattern, a big brake on that growth remains a chastened consumer being squeezed on at least four fronts.

First, with housing prices stagnant and foreclosures an ongoing problem, the houses of many consumers are worth less than their mortgages. This "negative equity" problem puts a severe crimp on spending, and using one's home as an ATM is no longer an option.

Second, persistently high unemployment constrains future GDP growth in both an obvious and subtle way. Most obviously, all the people in unemployment lines, who aren't bringing home a paycheck, are by definition spending far less than they otherwise would. More subtly, a high unemployment rate puts strong downward pressure on the wages of those who are employed, further suppressing consumption.

In still a third dimension of the problem, inflation has vitiating effects on America's purchasing power. Not only are oil and gasoline prices in a long-term upward trend, but so are the prices of imported goods ranging from foreign cars to toys and electronics as the value of the American dollar declines.

Finally, income growth has actually been negative since the beginning of the nought decade—in contrast to very robust growth in the preceding two decades. This is illustrated in Exhibit 1.3 using one of the best measures of income growth—real, inflation-adjusted average median household income.

Exhibit 1.3. Real Median Household Income Over the Past Three Decades


Total Growth Rate for the Period

Average Annual Growth










You can see that during the 1980s, real median household income grew a total of 18% over the decade, or 1.8% annually. Similarly, during the 1990s, the total growth rate was 16%, or 1.6% annually. However, during the nought decade through 2008, income growth actually went negative—to a growth-vitiating minus 1.4% over the nine-year period.3 As we shall explain, there are at least two reasons for this—one obvious and one more subtle.

The problem is not so much one of insufficient productivity growth, though an increasingly hostile tax, trade, and regulatory environment is harmful to income growth. A more subtle part of the problem, however, is rapidly rising health care costs. These out of control costs (which we squarely address in Chapter 9, "Why ObamaCare Makes Our Economy Sick") have taken an ever increasing share out of the total compensation paid to workers by employers in our employer-based health care system.

It follows from these observations that restoring the strength of the American consumer as an important driver of long-term economic growth is a complex and multidimensional task. Any broad rebalancing solution will incorporate at least five components.

First and foremost, it will mean putting unemployed Americans back to work. Second, it will mean stabilizing the housing market and housing prices. Third, it will mean more rapidly increasing the productivity of the American worker and making U.S. industry more competitive in international markets so that wage and income growth can once again boost purchasing power. Fourth, it will mean reducing America's dependence on increasingly expensive oil. Finally, it will mean creating a strong and stable dollar so that our import bill remains manageable.

Two final points on the consumption driver in the GDP Growth Driver equation are worth noting. First, nothing we have said about the falloff of consumer spending in this new decade should be construed as exhorting consumers to "go to the mall and help spend their way to prosperity." We tried that strategy in the 2000s, and what we got was initially a housing bubble, and then a housing bust, and then a bad balance sheet hangover.

Second, nothing we have said about the 2000s being a decade of overconsumption should be construed as an anticonsumption, moralistic judgment. Quite the contrary: We advocate a strong and robust consumer who generates sufficient income and wealth to enjoy a rising standard of living without going deeply into debt. Only with such a strong and robust consumer will we regain our path to prosperity.

  • + Share This
  • 🔖 Save To Your Account

InformIT Promotional Mailings & Special Offers

I would like to receive exclusive offers and hear about products from InformIT and its family of brands. I can unsubscribe at any time.


Pearson Education, Inc., 221 River Street, Hoboken, New Jersey 07030, (Pearson) presents this site to provide information about products and services that can be purchased through this site.

This privacy notice provides an overview of our commitment to privacy and describes how we collect, protect, use and share personal information collected through this site. Please note that other Pearson websites and online products and services have their own separate privacy policies.

Collection and Use of Information

To conduct business and deliver products and services, Pearson collects and uses personal information in several ways in connection with this site, including:

Questions and Inquiries

For inquiries and questions, we collect the inquiry or question, together with name, contact details (email address, phone number and mailing address) and any other additional information voluntarily submitted to us through a Contact Us form or an email. We use this information to address the inquiry and respond to the question.

Online Store

For orders and purchases placed through our online store on this site, we collect order details, name, institution name and address (if applicable), email address, phone number, shipping and billing addresses, credit/debit card information, shipping options and any instructions. We use this information to complete transactions, fulfill orders, communicate with individuals placing orders or visiting the online store, and for related purposes.


Pearson may offer opportunities to provide feedback or participate in surveys, including surveys evaluating Pearson products, services or sites. Participation is voluntary. Pearson collects information requested in the survey questions and uses the information to evaluate, support, maintain and improve products, services or sites, develop new products and services, conduct educational research and for other purposes specified in the survey.

Contests and Drawings

Occasionally, we may sponsor a contest or drawing. Participation is optional. Pearson collects name, contact information and other information specified on the entry form for the contest or drawing to conduct the contest or drawing. Pearson may collect additional personal information from the winners of a contest or drawing in order to award the prize and for tax reporting purposes, as required by law.


If you have elected to receive email newsletters or promotional mailings and special offers but want to unsubscribe, simply email information@informit.com.

Service Announcements

On rare occasions it is necessary to send out a strictly service related announcement. For instance, if our service is temporarily suspended for maintenance we might send users an email. Generally, users may not opt-out of these communications, though they can deactivate their account information. However, these communications are not promotional in nature.

Customer Service

We communicate with users on a regular basis to provide requested services and in regard to issues relating to their account we reply via email or phone in accordance with the users' wishes when a user submits their information through our Contact Us form.

Other Collection and Use of Information

Application and System Logs

Pearson automatically collects log data to help ensure the delivery, availability and security of this site. Log data may include technical information about how a user or visitor connected to this site, such as browser type, type of computer/device, operating system, internet service provider and IP address. We use this information for support purposes and to monitor the health of the site, identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents and appropriately scale computing resources.

Web Analytics

Pearson may use third party web trend analytical services, including Google Analytics, to collect visitor information, such as IP addresses, browser types, referring pages, pages visited and time spent on a particular site. While these analytical services collect and report information on an anonymous basis, they may use cookies to gather web trend information. The information gathered may enable Pearson (but not the third party web trend services) to link information with application and system log data. Pearson uses this information for system administration and to identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents, appropriately scale computing resources and otherwise support and deliver this site and its services.

Cookies and Related Technologies

This site uses cookies and similar technologies to personalize content, measure traffic patterns, control security, track use and access of information on this site, and provide interest-based messages and advertising. Users can manage and block the use of cookies through their browser. Disabling or blocking certain cookies may limit the functionality of this site.

Do Not Track

This site currently does not respond to Do Not Track signals.


Pearson uses appropriate physical, administrative and technical security measures to protect personal information from unauthorized access, use and disclosure.


This site is not directed to children under the age of 13.


Pearson may send or direct marketing communications to users, provided that

  • Pearson will not use personal information collected or processed as a K-12 school service provider for the purpose of directed or targeted advertising.
  • Such marketing is consistent with applicable law and Pearson's legal obligations.
  • Pearson will not knowingly direct or send marketing communications to an individual who has expressed a preference not to receive marketing.
  • Where required by applicable law, express or implied consent to marketing exists and has not been withdrawn.

Pearson may provide personal information to a third party service provider on a restricted basis to provide marketing solely on behalf of Pearson or an affiliate or customer for whom Pearson is a service provider. Marketing preferences may be changed at any time.

Correcting/Updating Personal Information

If a user's personally identifiable information changes (such as your postal address or email address), we provide a way to correct or update that user's personal data provided to us. This can be done on the Account page. If a user no longer desires our service and desires to delete his or her account, please contact us at customer-service@informit.com and we will process the deletion of a user's account.


Users can always make an informed choice as to whether they should proceed with certain services offered by InformIT. If you choose to remove yourself from our mailing list(s) simply visit the following page and uncheck any communication you no longer want to receive: www.informit.com/u.aspx.

Sale of Personal Information

Pearson does not rent or sell personal information in exchange for any payment of money.

While Pearson does not sell personal information, as defined in Nevada law, Nevada residents may email a request for no sale of their personal information to NevadaDesignatedRequest@pearson.com.

Supplemental Privacy Statement for California Residents

California residents should read our Supplemental privacy statement for California residents in conjunction with this Privacy Notice. The Supplemental privacy statement for California residents explains Pearson's commitment to comply with California law and applies to personal information of California residents collected in connection with this site and the Services.

Sharing and Disclosure

Pearson may disclose personal information, as follows:

  • As required by law.
  • With the consent of the individual (or their parent, if the individual is a minor)
  • In response to a subpoena, court order or legal process, to the extent permitted or required by law
  • To protect the security and safety of individuals, data, assets and systems, consistent with applicable law
  • In connection the sale, joint venture or other transfer of some or all of its company or assets, subject to the provisions of this Privacy Notice
  • To investigate or address actual or suspected fraud or other illegal activities
  • To exercise its legal rights, including enforcement of the Terms of Use for this site or another contract
  • To affiliated Pearson companies and other companies and organizations who perform work for Pearson and are obligated to protect the privacy of personal information consistent with this Privacy Notice
  • To a school, organization, company or government agency, where Pearson collects or processes the personal information in a school setting or on behalf of such organization, company or government agency.


This web site contains links to other sites. Please be aware that we are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of each and every web site that collects Personal Information. This privacy statement applies solely to information collected by this web site.

Requests and Contact

Please contact us about this Privacy Notice or if you have any requests or questions relating to the privacy of your personal information.

Changes to this Privacy Notice

We may revise this Privacy Notice through an updated posting. We will identify the effective date of the revision in the posting. Often, updates are made to provide greater clarity or to comply with changes in regulatory requirements. If the updates involve material changes to the collection, protection, use or disclosure of Personal Information, Pearson will provide notice of the change through a conspicuous notice on this site or other appropriate way. Continued use of the site after the effective date of a posted revision evidences acceptance. Please contact us if you have questions or concerns about the Privacy Notice or any objection to any revisions.

Last Update: November 17, 2020