A New Era Of Responsibility Bad For Economy?
By Justin Gardner | Related entries in Economic recovery, Economy, Money
I know I’ve been saving a lot more of my money. Not that I overspent in the first place, but I’ve been cutting back a lot on expenses where I can.
But our economy is based on the idea that people spend, spend, spend. And that could be coming to an end.
Grant McCracken explains how this could play out…
The standing expectation is that consumers who scale down will scale back up when prosperity and credit return. But it is possible that the new, more modest, positively Amsterdamian, consumption pattern will prove sticky. This is what happened in Japan in the 1990s. Consumers gave up free spending ways and never came back. As Tabuchi put in in the New York Times, “free-spending consumers [turned] into misers, making them a dead weight on Japan’s economy.”
Here’s the thing…the fact that we collectively spent much more than we saved was a VERY bad thing. Having Americans be so far in debt simply doesn’t work and if we all turn into misers, well, is that really the worst thing in the world? Because that’s most likely what will be happening all across the world too as people try to find value instead of buying anything they damn well please.
Still, it’s scary because those are exactly the conditions that can cause a deflationary spiral and record unemployment. Because if people don’t buy, then businesses don’t have to hire more workers and that brings about double digit unemployment which could easily lead to a new Depression.
Will you scale back up when the economy returns? Or are you forever changed?
This entry was posted on Monday, March 2nd, 2009 and is filed under Economic recovery, Economy, Money. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
March 2nd, 2009 at 3:12 pm
Here is a graph showing our saving rate data.
http://www.bea.gov/briefrm/saving.htm
There will be buyers when this passes and the smaller it is in the rear view mirror, the more we will return to our poor buying and saving habits. However, there will be people who felt the pain enough to permanently change their habits. My grandparents were incredibly conservative with their money and it was directly related to dealing with the great depression and war rationing. It is remarkable that this poor economic situation came just as we have recently lost the generation that still had first-hand memory of the great depression. I wonder if that is just a coincidence?
As for me, no change. If anything, I’ve been looking for deals, but I’m certainly not taking on debt or dipping into the emergency fund.
March 2nd, 2009 at 3:40 pm
i know i’m spending less in every way, and watching my spending carefully. what used to not be a big deal, such as $30 jeans, i now agonize over for a month before buying.
March 3rd, 2009 at 10:57 am
People just need to do what is in their own personal/family interest. Saving more now and getting back to some semblance of prudent basics is one way to assert that interest and should be encouraged. We all were living in a Dreamworld for the last 25 years trying to get something for nothing and hoping against hope tlike Mr. McCawber in Dickens that “Something Will Come Up.” We’ll it hasn’t and didn’t and won’t unless we get back to prudent basics and build from there.
March 3rd, 2009 at 8:14 pm
Sure, I’ll scale back up. But then, I had (and have) no credit card debt, my mortgage was paid off in under 10 years (a decade ago), and in general I wasn’t part of the vast leverage to the max movement.
So likely it’s not relevant to the question that you are really asking: if you borrowed and spent before, will you borrow and spend again?