Saturday, June 27, 2009


Don’t save! Spend!

A couple of articles in the Globe and Mail show just how far out of touch with reality some people can be. One of them, titled “Whither the Consumer,” meaning in particular the American consumer, laments that while American consumption once powered the world economy, the new found penchant of Americans to save instead of spend as though the world were ending tomorrow threatens the world economy. You sometimes have to wonder if these pundits are living on the same planet as we are. Debt-fueled spending is what got American consumers into this mess in the first place. In case the writer hadn’t noticed, Americans are in hock up to their eyeballs. At last they are coming to their senses, and see that they must save and whittle down their debt. But the “experts” condemn consumers for doing so, claiming this will derail the recovery.

Two points here. First, there will be no recovery that will restore the golden age of consumption and fast-paced economic growth. We may see growth in certain places at certain times — for example, countries like China may still enjoy some growth — but overall the world is headed toward a long decline characterized primarily by economic contraction. The order of the day for industrial society is more rust. So, trying to revive and sustain that system by inducing people to spend is wasted effort. People should not be blamed for ruining our chances for “recovery” because they are trying to put their financial houses in order and shed the debt that is strangling and imprisoning them.

Second, the debt that fueled all that consumer spending is but a part of the whole debt-based economic system in which anticipated future economic growth is the ultimate collateral for the massive debt incurred by consumers, businesses, municipalities, and governments. Because we are not going back to those days of economic growth, most of all that whopping debt is bad debt, and the world is just starting down the road to a string of massive defaults that will devastate the debt-based economic system.

The second article, “The consumer paradox,” looks at the situation from China. Not surprisingly, economic gurus contend that if thrifty Chinese would just stop saving so much and instead spend as Americans have been doing, China could do much to pull the world economy out of the sand trap and back onto the green. But of course! It’s that old chestnut about how one could get rich just by getting every Chinese to buy a pill. But we could get them to buy so much more by issuing them all credit cards and getting them to take on lots of debt, just as Americans have done.

Ultimately, we little people — Chinese, Americans, or whatever — have to watch out for ourselves, and that means we have to save most of what little wealth that comes our way instead of spending with abandon and getting ourselves into debt.

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