The suggestion has been made that, contrary to my recent Voluntary
Versus Involuntary post, a 10% (or more) reduction in U.S. consumer spending
would not result in a 'downward spiral' in GNP, jobs, and the like. To be
sure, it's been a while since I taught macroeconomics but I rather doubt
that these linkages between consumer spending, national output, and
employment have somehow been severed of late.
For example, has 'Okun's Law' been repealed--the finding that each
1% increase in the unemployment rate translates into a 3% loss in real GNP?
In 1996, we had 126.7 million Americans at work, so a 1% rise in
unemployment would mean another l.3 million workers out of a job. And a job
loss of that size carries some very high costs in human terms. A study done
for the Joint Economic Committee of Congress in 1976 found, for example,
that such a 1-point rise in the country's unemployment rate--from, say, 5%
to 6%--leads to, on average:
. 495 deaths from cirrhosis of the liver
. 648 homicides
. 920 suicides
. 3,349 admissions to state prisons
. 4,227 admissions to mental hospitals
. 20,240 fatal heart attacks or strokes
(Brenner, 'Estimating the Social Costs of National Economic Policy,'
JEC, U.S. Congress, Wash. DC 1976.)
Again, I'd be very much interested in how the group proposes to
arrange the posited 10% (or larger) reduction in the country's consumer
spending without simultaneously imposing some very harsh costs on a lot of
people who haven't volunteered to become martyrs.
Charles Mueller, Editor
ANTITRUST LAW & ECONOMICS REVIEW
http://webpages.metrolink.net/~cmueller
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