Are we ready to spend?

I don’t know about you, but I don’t want to spend money right now. In fact, for the past few of years, I’ve been relatively thrifty (compared with my previous, debt-building, ways). For a while, I imagined I was unique, that I was somehow getting ahead. But a couple of years ago, at the beginning of 2007, I started reading articles that said that people were starting to save more. A significant amount of people had begun to feel uneasy, it seems, about all the debt they were accruing and starting to save more. Of course, two years and a couple of stimulus bills later, people are feeling even more skeptical of debt. I don’t know about you, but debt is one of the scariest bits of the possibility of losing my job. How am I gonna handle this mortgage!?! I can hear my inner-breadwinner screaming. And with layoffs and unemployment growing at substantial rates, I’m sure many people are looking for ways to set aside something “just in case”. Certainly they aren’t likely to be building even more debt. Further, I’m in line with Steve Ballmer, Microsoft’s CEO, more than our politicians, when he says:

… over the last period of time, the balance has really shifted. Instead of innovation and productivity driving growth, it’s really been unsustainable levels, particularly of private debt, that have been a key driver of economic growth. (emphasis mine)

He continues: “In my view, what we now have will be a fundamental economic reset.” A fundamental reset. Nudges to “free up cash” will mean I have more cash to put in the bank, to help stave off what seems like an inevitable doomsday scenario, not that I’m going to spend more just to get a newer, larger TV. So politicians don’t want to give us money, because we won’t spend it. Instead, they give it to banks and dying car companies. Strangely enough, it seems to me that, of the two, the car company is the best way to get money into the economy — especially if no one is buying cars — since the car company will have to spend, spend, spend just to stay afloat. The banks, it seems, can’t help but reward themselves with tax-payer-funded bonuses in obscene amounts. But what do I know? I’m just a freetard. I don’t have a degree in economics. And I certainly want to increase the liquid assets I hold right now and fill in the the debt hole I’ve managed to dig for myself. I can’t imagine others feel much differently. And giving bailouts of billions to banks will just aggravate that feeling, no matter how much they need or deserve it. Update: I love this bit from winterspeak: The US household has gone from an unsustainable level of negative saving to a sustainable level of positive saving, as we all knew it eventually would, and this is only triggering the Apocalypse because academic economists have no idea how money works.

5 thoughts on “Are we ready to spend?”

  1. Paradox of Thrift

    Some econ types think that gov’t should be the spender of last resort, which helps stop the downward spiral of people not spending, which gets people fired, so people spend less….

    Other econ types think that gov’t tends to misallocate $$$ and in a crisis, the “need” to spend means we all just end with more taxes later on without much to show for it.

    Personally, I’d not think about gov’t too much (other than automatically monitoring it for things that will cause you to leave the country). I’d look more at your finances and ask yourself how you can take advantage of this downturn (“Hard Times” by Studs Terkel remains a great history of the Great Depression).

    Basically, we know the economy goes up and down, so save your dollars and buy things when they’re on sale. E.g., land in Florida seems to go through boom/bust cycles every 10-20 years, so just wait for the next bust to buy your retirement home.

    Patrick http://haller.ws/logs

    1. Re: Paradox of Thrift

      You’re assuming I *want* to retire in Florida. No such luck.

      And, since, you’re more up on these things: does government debt matter? Apparently some economists don’t think so. I guess http://winterspeak.com/ is no more an economist than I am a computer scientist (that is, we both have degrees in the field and have opinions, but what does that mean?) but he’s been writing some really interesting things recently.

      And I don’t really fret over what the government is doing. They’re less important than they think they are.

  2. It seems to me that if one were serious about getting people spending again, one would reinforce Social Security. The way to make me feel more confident in my future is for the government to save money, not to spend it. As it is, the current idiocies seem mostly targeted towards convincing me to spend because my savings won’t be worth a damned thing after the inevitable inflation that these policies are going to impose on us.

    But then I’m of the opinion that economics is like anthropology, only with actual data that you can throw out when it doesn’t fit your thesis (See, for instance, the “M3” money supply numbers. “Hey, they match our premises, these are important. Whoops, they’re diverging from our graphs, they were overrated. Hey, look these are important again!”). This is mostly about lining the pockets of the scam artists who got us there in the first place, not about actually “fixing” the economy.

    It’s akin to the robber barons of the railroad era, who got bonds to build the railroads, embezzled fortunes from that process, and when the time came to pay back the bonds said “the railroads can’t afford that, and they’re too big to fail.” Thus were the fortunes of Stanford, Huntington, Crocker, Hopkins, Biltmore, Gould and their ilk basically just transferred from the American taxpayer, and so will the names we’re hearing today be remembered in a century: Scam artists who bought up enough politicians to soak the taxpayers yet again.

    1. Dan, have you been following winterspeak? I’ve no idea if he is right or wrong, but two things stand out:

      1) He encourages some level of deficit spending, saying it will improve savings.
      2) He is no fan of the stimulus plan.

      He is contrarian enough, but, at the same time, engaged enough, that I give what he says some credit.

      At the same time, I like your comparison of the current banking barons to the old ones.

      1. I’m reading through winterspeak a bit, and I don’t buy his contention that “Government deficit enables private savings.” The “somebody’s got to borrow it” zero-sum-game thesis doesn’t work for me.

        Although I guess I just did say that I think deficit spending encourages savings.

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