Should We Spend Our Way Out Of The Recession?
Oh gee, now here’s a problem….
The Wall Street Journal has a headline which reads, “Hard-Hit Families Finally Start Saving, Aggravating Nation’s Economic Woes.”
According to the paper, rising savings rates are “a major reason the downturn may not soon end. Americans, fresh off a decades long buying spree, are finally saving more and spending less — just as the economy needs their dollars the most.”
It’s true that roughly two-thirds of the nation’s economic activity is a by-product of consumer spending. Going to the mall or buying from a catalog are good ways to keep factories humming and lots of folks employed. Now, however, Americans are cutting back, saving more and the result is less consumer spending.
“U.S. household debt,” says the paper, “which has been growing steadily since the Federal Reserve began tracking it in 1952, declined for the first time in the third quarter of 2008. In the same quarter, U.S. consumer spending growth declined for the first time in 17 years.
“That has resulted in a rise in the personal saving rate, which the government calculates as the difference between earnings and expenditures. In recent years, as Americans spent more than they earned, the personal saving rate dipped below zero. Economists now expect the rate to rebound to 3% to 5%, or even higher, in 2009, among the sharpest reversals since World War II. Goldman Sachs last week predicted the 2009 saving rate could be as high as 6% to 10%.”
Wasn’t it the ethic of all-out spending and no savings that at least is partially responsible for the financial meltdown that impacts the country today? Would it not have made more sense for people to buy smaller homes and cheaper cars during the past few years — and to stick the savings in a safe place in case hard times arose?
Hard times, after all, always arise at some point. There’s a job loss, car accident, illness or divorce, something which devastates those who live paycheck-to-paycheck. And living paycheck-to-paycheck is exactly what happens when you spend every dime you have.
It’s foolish to think that people are going to look around and not think: Spend more now? You’re kidding. Why would I spend more today when my company is downsizing, my town can’t pay for school teachers and two houses down the street are being foreclosed?
Instead, people are going to do what the banks are doing with billions of dollars dropped on their doorsteps from the federal government: They’re going to hunker down, not lend, not spend and hold onto the money.
And it’s our money at that….
For the full story, see: Hard-Hit Families Finally Start Saving, Aggravating Nation’s Economic Woes, January 6, 2009
© Copyright 