Sunday, November 7, 2010

Kickstarting the economy by spending

Weber's chapter "Spendthrift Nation" discusses in depth the theories of spending our way out of a recession versus increasing our savings level:

I asked Ron Wilcox, author of the book Whatever Happened to Thrift? ...whether he would suspend his passionate advocacy of thrift in favor of Americans buying their way out of recessions like the one that began in 2007. A new emphasis on saving "will make the recession deeper and longer," he acknowledged. But if people keep spending at very high rates, it'll just kick the problem down the road. I've come down to the view that it still makes sense for American families to save money." (p.207)

The problem is that no one wants to discuss what will happen if we DO NOT save money. The baby boomers will deplete social security.
Gen X and the Millennial Generation may not be able to count on social security in old age. We may see an enormous increase of poor, elderly Americans who spent in their youth (as they were told to do in order to improve the economy) only to be left to starve in old age.

While I am not a student of economics, it seems to me that too many people are trying to apply the model of the economy of the 1930's and 1940's to the 21st century. The country has changed too much for Roosevelt's solutions to work for us.

We have effectively outsourced most of our manufacturing and not come up with any industries to replace it. There is also has also been a major erosion of the American middle class:

http://www.nytimes.com/2010/11/07/opinion/07kristof.html

Encouraging people to recycle tea bags as Weber does will save at most $10/year (you can buy a box of 100 bags for $3 at Trader Joe's). Perhaps individuals should focus on wide-scale financial reform in addition to restarting personal habits of thriftiness.

A previous poster suggested that we spend more. Back in 2008, I expected the government to spend money on the development of solar power in the US and the repair of US infrastructure. I hoped to be able to buy cheap, American-made solar panels by 2012 so that my building could afford to get off the grid. I expected to see bridges repaired, roads resurfaced, loads of solar street lamps making my neighborhood safer, and an end to classroom overcrowding in NYC through the construction of new schools. I expected, in short, a 21st-century version of Roosevelt's WPA program. Because of the great changes in American society, I did not get one.

Do Americans need to spend more?
Will spending more improve our economy?
Is the emphasis on personal thrift a way of escaping from the need to advocate for major reform in the US economy?

1 comment:

Anonymous said...

Spending and an overall increase in demand is needed temporarily to kickstart the economy again and hopefully create jobs (in America!!). In the long term, Americans will need to either save more, work longer or be more thrifty. It's likely to require a combination of all three. We have to get the economy out of the rut that it is in, then deal with the long-term structural issues of retirement and health care.