Business commentary consumer-confidence debt Economics

Why won’t you consumers just be confident?

If you follow financial news, or just happen to catch the headlines while waiting to hear more about Tom Cruise or dangerous items you have in your home that could kill your children, you've probably heard about it. The United States is stuck in a paradoxical situation – the economy is growing, consumers are spending, and unemployment is low, yet measures like consumer confidence are down.

How can this be? I've heard more than a few analysts try to explain, and even the one they had on NPR a while back seemed to be missing the boat. Some blame high gas prices. Most of them seem to think that people are unhappy about the war in Iraq, so they'll answer negatively to any questionnaire handed to them.

I have heard a bit about the lack of wage growth or decline in wages brought up. I think there's something to that, but it still doesn't seem like a complete explanation. This trend is old news at this point anyway.

I am not an economist, but I have read The Wealth of Nations, so I feel qualified to comment. I think the real problem is that the costs of losing a job have become too high. I think Americans are having a harder and harder time staring straight ahead because the chasm below seems wider and deeper.

Let me explain. Ask you parents, your friends, or the guy at the muffler shop. What's the first thing they would worry about if they lost their job tomorrow? My guess is it will be health insurance. Insurance costs have gone up and up. Many people are on long-term, maintenance medications for conditions like blood pressure, high cholesterol, and diabetes. These are very expensive drugs – how long would you be able medication that costs $50 a pill, with no insurance and no income?

Debt is another issue. Some would tell you that debt is not a problem. Think of it this way: let's say you can afford to pay $900 a month to live somewhere. If the interest rate is 10 percent, you can afford to buy at $102,000 house, while if the interest rate is 6 percent, you can afford a $150,000 house. When the rate is high, you might decide just to rent a nice apartment, while when it's low, you might decide to buy a half-way decent house in Michigan instead. See, debt is a good thing!

It is, or at least it can be. But that example is pretty loaded. For one, many people have been buying houses they can barely afford (or can't afford at all), based on the expectation that they'll make money on the housing price bubble. Second, as soon as you lose a job and start missing payments, the difference in costs become apparent. Miss rent, and you might have to move back in with mom and give up your deductible. Imagine defaulting on your mortgage, and suddenly the costs of losing a job will weight down your consumer confidence like a lead balloon. Credit cards are an even better example – I welcome any super pro-debt economist to miss payments on even a small balance on their credit card. The interest rates are high, but the fees and charges are no cup of tea.

The truth is that taking on debt can make a lot of sense when looked at over 30 years of house payments, 10 years of college debt, or 3 years of auto loans (especially with dealers giving out 0 percent financing). But any debt you take on increases the penalties you'll face if you're out of work. Between rising debt and rising costs of medical treatment and insurance, unemployment suddenly looks scarier and scarier – even if you have a job. Heck, even if you have a great job, in a growing field, with no layoffs on the horizon.

I don't think any of this is Nobel Prize material, it seems pretty obvious to most people with jobs. I just have to laugh when I hear analysts talk about war weariness or gas prices like most people are idiots who can't understand that the GDP is fit as a fiddle. I'm just saying that even if the tightrope is a bit thicker, and bit more sturdy, the hole is a hell of a lot deeper than it was five or ten years ago. Why can't you people just stop looking down?