Recent polls indicate that far more consumers are concerned about the level of our debt and deficits than they are about unemployment. Maybe that's because nine out of 10 people who want a job have a job, and 10 out of 10 understand the implications of excessive spending and debt.
It would seem to follow that if consumers are most afraid of debt expansion, then more large government programs to stimulate the economy might heighten their fears and produce even more contractionary behavior - more saving, postponed buying, etc. That sentiment could offset, even overwhelm, any efforts to stimulate our sluggish economy.
Measures of consumer and business confidence these days strongly suggest that confidence in the future of the economy deteriorated.
Small-business owners are not convinced by the debt-ceiling agreement, as sentiment, after eroding by small amounts for five months, took a plunge in the August survey: a vote of "no confidence" on the policy. Only 7 percent thought business conditions would be better in six months, while 41 percent expected them to be worse. Twenty-one percent expected real sales volumes to increase over the next three months, but 34 percent expected declines. The prospect of no real progress on reducing government spending and the deficit clearly discouraged business owners.
The August University of Michigan/Reuters poll of U.S. households provides more evidence of concern. Three-fourths expect "bad times" for the economy in the coming months. That begins to rival the gloomiest survey on record, when 82 percent were discouraged in 1980.
Asked for examples of recent news that explained their pessimism, 25 percent were negative on government, a record in the 50-year history of the survey. When asked to rate the administration's economic policies, 57 percent gave a negative rating, a record high, exceeding the worst ratings given to any president. Only 5 percent had a positive view of the present policies.
Survey director Richard Curtin put it well: "Consumers have shifted from being optimistic about the potential impact of monetary and fiscal policies to a sense of despair and pessimism about the role of the government."
If more debt and government spending have become the major concerns of a majority of consumers, then the more the government tries to do with big spending and borrowing programs - "We'll tell you how we'll pay for it later" - the more fearful of the future many consumers and business owners will become.
That condition will induce even less spending and more saving. This does not promote the recovery we need in the consumer sector to restart hiring and small-business investment.
It might be more stimulative to announce a bold plan of retrenchment in government spending, identifying very specific spending cuts (particularly in special-interest spending, which is not broadly popular). Such a move, done immediately, would clearly and convincingly reduce the deficit.
With confidence in the future restored, consumers and business owners may well be more willing to bet their earnings on the future by hiring and spending. This is the kind of broad-based stimulus that is needed - growth in the private sector (with the employed spending more money), not in government's share of GDP.
Absent confidence, tax cuts will be saved, not spent, and current consumption might be reduced as well. It's a "confidence game" worth thinking about.
Bill Dunkelberg is a professor
of economics at Temple University and a nationally recognized expert on small business. Contact him