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To save or not to save?
Confused by math?
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David Brancaccio: Let me start by acknowledging, I'm only a guest here, filling in for Tess Vigeland. Just passing through. And as a guest maybe it's impolite to point this out. But perhaps, since I hosted Marketplace for 10 years, maybe I'm the one who can say it: Does this program have a fetish?
Montage of voices:Of course we should all be aiming to have at least three months in the bank for emergencies. And then 20 percent goes for paying down debt and savings. A rainy day fund, it should be at least six months. Start socking away 10 percent of each take home, each paycheck toward that emergency fund. Everybody just has to save more.
You listen for more than five minutes and as night follows day there's going to be somebody on Marketplace Money telling us to save. The prudent course, savings. Build up a nest egg, an emergency fund, build those assets. Hoard your wealth, don't sprinkle it around by spending.
And, apparently, you're listening. Because there's word this week that late payments on credit cards are at their lowest levels in 17 years. Americans being prudent, not spending beyond their means.
And if you keep at this savings "binge," and you persuade your friends and neighbors, to do the same? Congratulations, you may just kill the economy. We say save, but the messages to do the other thing, spend, come at your from so many other sides. Advertising manufacturing desire and that persistent pitch that the economy needs your dollars to keep the double-dip away. Or is it save to help the economy. Which is it?
When the economic crisis hit after the mortgage and credit markets seized up, President Obama weighed in with this:
Barack Obama: We've got to spend some money now to pull us out of this recession. But as soon as we're out of this recession, we gotta get serious about starting to live within our means.
Confused? With this new wave of economic uncertainty gripping this late summer under what circumstances should we spend? Or borrow? Or save? We talked to some people on the streets of New York and in Grand Central Station about their sense of things...here's what they had to say:
Man 1: I think to a certain extent, consumers need to spend more to help the economy. We all recognize it's a difficult time. On the other hand, everyone has their own means, so you're gonna need to do your own assessment of what your own personal finances allow.
Man 2: Nothing else seems to be working. Maybe a boost from the Fed will give us a little more stimulus that we need, put some people back to work, infrastructure projects. Roosevelt all over.
Woman 1: I think the practical thing though is that a lot of people don't understand how their own personal consumer spending would stimulate the economy. And perhaps if there was more information out there, then they would realize that every little bit of spending does help, then people would be spending more.
Man 3: Yes, I do think that we should spend money to help the economy, because when you put money into something, it then kind of starts up the business of it. Regardless of the amount of profit or the amount of revenue, it still will be able to create some business, instead of no money, which doesn't create business at all.
Man 4: Everyone's talking about how the stimulus package did not work, but I think it didn't work in the first place, because there wasn't enough stimulus to begin with. And I think that if the Congress can do something about it we should spend more money on it.
Man 5: We should absolutely be spending more money to help the economy. It's absolutely crazy that you wouldn't. People always use the example of, well, we should be like a business and we need to make sure that we're not spending more than we have. But let's say you have a shipping business, you've got a bunch of boats, they've all got holes in them. So your employees are out of work, you're losing money. What are you gonna do? You're going to take out a loan, you're gonna spend the money to fix your ships, get your employees back to work and start earning money again, so you can start making money.
The question is, are we now ready to say "No!" whenever someone says: "Wow, this is a great investment opportunity, and it's almost no risk, because it's based on assets that will only get more scarce over time. Don't you want to get in on this before somebody else beats you to it? Someday you'll kick yourself if you don't buy in now." What are the characteristics of virtuous entrepreneurship? How do you distinguish pious invitations from immoral scheming?
David, thank you for finally bringing to light what was painfully obvious to me and to anyone with
any bit of common sense from day 1 of this recession. When the credit markets froze, everyone talked
about how we needed to get money back in the hands of the very same irresponsible borrowers who got
us into this mess in the first place. And then the Obama administration came up with the brilliant
idea of borrowing even more money to create temporary jobs. Most of the "solutions" we've seen on the
table so far have been variations on the same theme - borrow more so we can spend more. And then
when you run out, borrow again so you can spend again. And we wonder why our national debt keeps
growing? This is not a new problem - it's the same problem in a different guise.
After the real estate market fell apart, we came to the sober realization that we had overestimated
the value of our homes, and though painful, most of us have conceded that the market needs to
readjust so that prices are closer to their "true" value. Though it's true that we're working as
hard as we can to help people keep their homes, not many of us would think that artifically
reinflating home values to their pre-burst values is a sustainable solution to the housing crisis.
Similarly, the average American's worker's spending power was artificially inflated by some of the
same forces that led to the housing bubble. If Joe American had $1000 in his coffers in 2000, maybe
$200 of that was actual cash, while the other $800 was borrowed money. That didn't matter to the
economists when they calculate GDP - because at the end of the day, he had still spent $1000 on a
plasma TV. Our economy was strong!
If people were to really live within their means (i.e, if Joe buys a $200 TV this time around), this
would mean a big fall in spending, it would hurt GDP, even more people would lose jobs. How in the world could this be a good thing?
If Joe buys the $200 TV he can afford, that means that BigBoxStore will probably not be stocking its
electronics department with 3 sales associates, maybe they only need 1. And maybe that means
BigBoxStore will have to lay off some people because Joe did the right thing. And maybe that means
America doesn't need 500 BigBoxStores, maybe that means we can get by with 300 stores.
Is that wrong? If BigBoxStore's accountants discovered that America only needed 300 stores because
people were spending less and living responsibly, they would downsize in a heartbeat. No hard
feelings, just simple supply-and-demand economics.
I don't mean to be harsh or callous, but why can't we accept the idea that the job market needs to
readjust as well? Obviously, we're talking about real people with real families with real mouths to
feed at home - and I am not minimizing that. What I am saying is that just as the housing bubble created a glut of housing inventory, so did our inflated sense of "wealth" create an inflated demand for goods and services, and the jobs required to provide those goods and services.
Our beloved policymakers will do whatever they can to keep all 500 stores open because at the end of
the day, those 200 closed stores represent 40000 more unemployed workers, 40000 more people that
can't pay taxes, 40000 more people that will apply for unemployment. In the end it probably costs less for the government to keep all 500 stores open and running even if it means that Manny Moe and Jack are twiddling their thumbs waiting for the customers that aren't coming.
Welfare state, here we come!!
I was able to listen to only a portion of your show but noticed that the phrase "..to save the economy.." was mentioned quite often. Since when has it become the citizen's duty to save the economy? I believe in life, liberty, the pursuit of happiness and respecting the natural environment; the "economy, such as it is" be damned.
I missed this on air yesterday. Glad I was able to read it. This is a conundrum that has irked me for years now. We consumers are exhorted to save, save save, yet we consumers are also the ones expected to rescue the economy by spending, spending, spending. Meanwhile the "engines of industry"-businesses and corporations-are hoarding money instead of investing it in improvements in products and services (including hiring), thus ensuring that there is less money to go around in the economy. Hence, no recovery. Sure seems unfair to the consumers, many of whom have had their paychecks and/or their jobs downsized, in many cases by the same companies that are doing the hoarding. What's the solution? Targeted taxes? More restrictions on companies buying the competition instead of competing with it?
