April 25, 2024
Money

Letter from America – where people love spending money


I APPRECIATE that a subject like ‘the economy’ is not one that most people find particularly interesting unless you are talking about your own budget but in this “Letter from America” I want to say how the economies of the two countries, the US and the UK compare and what does this mean for you and me.

The US economy which is the largest in the world accounts for over 25 percent of the global economy compared to that of the UK being around 3.1 percent, but that in itself is not surprising when you compare the size of the two countries.

While the UK has a highly developed social market economy based around a mix of services such as manufacturing, construction, agriculture, and utilities here in the US it’s more built around services than producing goods. The US is the largest importer of goods in the world with a lot coming from China and other countries in southeast Asia.

Despite the antagonism shown politically towards China by the US it buys an awful lot of goods from there and the American public benefits greatly from a glut of cheap products of all types. US manufacturers just can’t compete on price with their Chinese counterparts although they can generally on quality but at a much higher price. The effect of the previous Presidents’ moves to add high import tariffs to imported Chinese goods only went to increasing the cost to the American buying public and they didn’t like that, that’s for sure. Those price and inflation damaging tariffs have since been removed.

During the Covid period when ports were almost closed down, the west coast had hundreds of huge container ships parked off the coast waiting to be unloaded which caused the supply chain to virtually collapse. Things are back to normal now, however.

The US economy is fuelled by high productivity and a lot of natural resources which contributes towards higher-than-average household and employee income than amongst many other countries. But the role of the consumer is so great that the consumer is the king.

This is characterised as being a consumer led economy, much more so than in the UK. Not that the consumer isn’t important in the UK rather that they play a much bigger role here and consumer expectations are very high. As the 19th century German economist Karl Marx described the US economy as a “Capitalist economy” and that certainly is the case today.

Prior to 1890 the British Empire was the world’s most productive economy, but things have changed since then of course, and the UK economy is now focussed around a thriving service sector particularly financial services along with tourism, manufacturing, retail, and agriculture to name a few. It is however the second largest economy in Europe. The US – UK investment relationship is the largest in the world which means the two economies are strongly linked to each other in many ways.

So, having set out the basis of how each economy functions in general, what does it look like for you and me as consumers? There’s no point in me telling you about your consumer habits and experiences as you live with them every day just as I did when living in the UK, but I can tell you about being a consumer here these days.

If you’ve ever visited the US on holiday, then you will have had a small brief taste of how things work here but living here you really start to notice the difference. There is no doubt that consumerism is the driver of this economy and supply and demand determines the price of goods considerably.

Here, the more something is in demand, the higher the prices go and conversely if demand decreases the price goes down. You might say it’s the same in the UK, but I often found that in some instances the cost of something would go up if less were being bought and that was to maintain income based on a lower number of purchases.

Here, businesses actively and aggressively chase your business and offers and special offers and this one day only offers are everywhere. There is never a reason to pay the full price if you are willing and able to wait for a lower price coming soon. Consumers have the money, and the businesses want it from you.

It’s not like going to those countries where bartering is the way of life, but competition brings down prices that’s for sure here. However, you still must be aware of the additional costs that appear after you have decided to buy at the price advertised. Tax is added to your purchase in the form to a purchase tax from the State or “ad valorum” which to you and me is VAT.

I bought a car a while ago and after agreeing what I thought was to be the price and then the 6.6 percent tax was added. But that’s the way it is. Interestingly enough, that tax goes to your local council to fund its services. A similar thing applies to energy bills because utility companies operate as franchises into each council area and house and car insurance payments too. Local councils have a very different financing arrangement than do UK councils. But in the end, everything has to be paid for one way or another.

But in general, US people have more available money to spend, and they love spending it, in fact they expect to be able to spend on things hence the consumer driven economy. If they haven’t got that extra money to spend then they are miserable and complain. They are generous tippers, something that is a rarity in the UK.

But as the work of servers is very low generally, they make up for it in tips. If you tip only 10 percent of your bill, then you are miserable and 20 percent to 25 percent is not unusual.

It’s taken me a while to adapt to how things are but now it’s my “new normal”.





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