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Saving more could be bad for economy

Lots of people saving in a piggy bank

TEXT OF STORY

TESS VIGELAND: Chalk the Macy's announcement up to a number out from the Commerce Department. Consumer spending fell for the sixth straight month in December. See, the financial crisis has convinced Americans to try something a little different -- it's called saving. But now this sudden attack of thrift is having dire economic consequences.

As Marketplace's Steve Henn tells us, the worst part is that it could be habit forming.


STEVE HENN: It's good to save some money. But when everyone starts saving at the same time, it can be an economic disaster. Goods pile up on store shelves, companies cut back on production and lay off workers. Then consumers pull back even more.

It's a nasty little cycle. And all of a sudden Americans seem stuck in it.

BARBARA MARCUS: I think we're trying to economize a little bit.

Barbara Marcus works as a magazine editor in Washington, D.C.

MARCUS: My job should be all right but I'm like everybody else, a little worried.

Victoria Kirker works for National Geographic.

Victoria Kirker: I feel secure, but at the same time you never know. . . .

So, like much of America, Marcus and Kirker started spending less and saving more.

Kirker: Just because of the economy and seeing everybody else losing jobs.

But Greg McBride at Bankrate.com says the unemployment rate is only 7 percent, however . . .

Greg McBride: The other 93 percent think they might be next.

Economically secure consumers should be buying more. But McBride says fear is a powerful thing. It quickly changes economic behavior and might even break America's shopping habit.

McBride: Consumers can no longer think that they're able to borrow their way to prosperity. That is a fundamental change.

And some behavioral economists say that now that so many Americans are saving, the trend could become self-reinforcing. Turns out when people make buying or saving decisions they often look more closely at what their peers are up to than prices or the economy.

In Washington, this is Steve Henn for Marketplace.

About the author

Steve Henn was Marketplace’s technology and innovation reporter for the entire portfolio of Marketplace programs until December 2011.
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I own a small business, my income depends on people buying my products. Because more people are saving I am not able to sell enough to stay in business without sacrificing profit margins or laying off employees. Even as I slash prices I find that my competitors are doing the same, which means I have to slash prices even further. It won't end until somebody is out of business. Saving can definitely have a negative impact on the economy. As more people save, more people lose their jobs. Spending too much is definitely bad, but so is saving too much.

In the last few months, the "act" of saving — in which I cruise right by a store where I would have otherwise thought I needed something — gives me a little adrenaline rush. I think it IS habit-forming! (And no, I'm not sorry.)

On a planet with finite solar income, land and water, an economy based on spending is ultimately suicidal, as so many defunct civilizations have already discovered. Meeting needs directly and having a wealth of time is a far more sensible and saner foundation for an economy. Like a cat who's run up a tree, we need to figure out how to get back down, and saving money is a start. As I point out in "Simple Prosperity," we're inventing a joyfully moderate culture that yields twice the satisfaction for half the resources, not by "giving up" the good life, but getting it back -- by eliminating waste, excess, chronic illness, doubt, debt, shame, guilt, and regret. It's time to wake up from the (old) American Dream, and move into a Restoration mode. To get there, we'll need to set a course for prevention, precision, and participation.

OK, so I did all the right things - no debt, have savings, and when all my friends were buying and traveling I worked and squirrel $ away.

So now because I have savings, this mess is MY fault?

It is not my job to buy things I do not need, to live above my means, and to buy a new car every 2 years.

Sorry... Wait, no I am not.

"It's good to save some money. But when everyone starts saving at the same time, it can be an economic disaster."

RIGHT! But everyone overspending and skyrocketing personal debt at the same time is 'good'. Economic relativism just doesn't cut it.

Savings is only bad for 2 very specific reasons:

1. We're a consumer based economy instead of saver based (China), so anytime we switch it's going to present a fundamental shift to all sectors of our economy.

2. It's only bad in the short term. Once people build up enough savings that they feel safe (it may take 5-10 years), they will start spending again, hopefully in a more controlled manner. In the long term it's absolutely necessary to the health of our economy, but it's gonna hurt for a while.

"Consumers can no longer think that they're able to borrow their way to prosperity."
Now, if only we can get the Congress to understand this principle. Four decades of irresponsible budget deficits have bankrupted this country!

Corporations and economists shouldn't scold consumers for saving instead of spending--we're just right-sizing the economy!

Savings is a BAD thing?? Come now. See where DEBT spending has brought both individuals and the country? Act your wage. I'd rather have the savings than the debts. Debt free & not worried.

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