Agree. A country which relies on Service industries for 2/3’s of GNP can only go on for so long.
Real products need to be produced.
Service is actually a pretty cool economy, but it does fall prey to negative feedback effects.
So long as service people want to work, you can grow your economy without end simply by having more people work, or work more hours
Other than the friction of taxes, we can just keep doing more and more for each other, exchanging money round and round. Give me a dollar, and I can generate a thousand dollars worth of income for a thousand people.
Every time you make something, you take some of the money out of the flow and embed it in some tangible item, which means it can’t be spent again.
I don’t disagree with you — a manufacturing economy is much more stable, since if you convince people to stop spending money in a service economy, suddenly everybody is sitting in their living rooms wondering what to do.
But since all the goods are being made in foreign countries, and most of the service work is done by americans living in america, at least our services are “buy american”.
We have a winner. We didn't becaome a great country by taking in each others' laundry - we MADE things.
Why?
What I’m saying is: yes, you are stating the common wisdom and traditional approach on this, but is it really true today?
If consumer spending did not contract as it did these last months, the economy would be doing fine. It’s not the “credit freeze” that is responsible for most of the contraction. It’s the fact that people with money to spend on discretionary income are the very ones who just lost 30-40% of their 401(k)’s and another 30-40% on their expensive homes.
They can spend, but they aren’t going to.
It doesn’t have anything to do with manufacturing the stuff they used to buy and would have bought had they not been crashed by the housing bubble.