rss feedFrugality? How about spend, spend, spend!
There are times, such as these, that I wish I was still sitting in an economics class.
Learning new theories, of course, would help. But I’d like to ask the professor a question or two about the state of the U.S. economy.
As in: If saving money is a rational move for people, especially given the Great Recession, how does that square with the need for a healthy amount of spending from consumers to circulate money, support jobs and stimulate demand?
What types of economies offer people the opportunity to have a healthy savings rate AND contribute to robust consumer spending? What is considered to be the right mix?
The Associated Press moved a story talking about the topic of not spending as much money and reported that two-thirds of the surveyed economists said that a new frugality has emerged.
From the news agency’s story:
Their behavior suggests that the Great Recession may have bred a new frugality that will endure well into the recovery. And because consumers fuel about 70 percent of the economy, their tightfisted habits means the rebound could stay unusually sluggish.
The savings rate for people in the United States now hovers around 3 percent, down from a high of 6.4 percent last year and up from less than 1 percent before the Great Recession, the AP reported.
It was even lower than that in 2005. The news agency reported that at one point that year, the savings rate for people in the United States was negative 0.5 percent.
Again, from the AP:
The last negative rates occurred in 1932, a drop of 0.9 percent, and a record 1.5 percent decline in 1933. In those years Americans exhausted their savings to try to meet expenses in the wake of the worst economic crisis in U.S. history.
And in a nod to wording I spotted years ago in a Spy magazine article about comparing the 1980s conflict in Grenada and the Vietnam War: We were all a lot younger in 2005.
In the past, I have talked about the Great Recession creating a new American Price – meaning anything significantly lower than before – and questioned why U.S. News argued for irrational behavior from consumers.
In a way, I understand the idea in that U.S. News article. But while irrational spending can help stimulate demand and keep products moving from factory to showroom floor, it also could – conceivably – lead to a double-dip recession.
See the 2005 example of the negative savings rate above.
Also: Billions of people want their online content to be free - an idea I support in many ways but there is an argument about paying the people who create narratives, images and videos.
By the way, if you are in the market for goods at competitive prices and you come across a store that offers a price matching policy, I would question it.
Logically, it does not make sense because both goods at two different sellers are still the same price.
If price is not an issue, by all means, please enjoy your financial freedom.
In a big-picture sense, the huge financial bailout of Greece probably isn’t inspiring too much global confidence.
But that might be seen as a distant issue by some people in the United States.
On the consumer home front, there was this good news, at least from supply and demand: Wired is reporting that Apple has sold one million iPads since the device went on the market.
I’ve already seen two people using them.
Here are some other questions I have about savings rates, the Great Recession and better economic data:
If savings rates from banks are one way to attract capital, which is later loaned to other investors at higher interest rates, why are they so low these days?
I have a basic understanding of how interest rates can change and the role of the Federal Reserve in the process.
But if circulating money is one goal these days, shouldn’t savings rates be higher?
I understand that savings rates offer a high level of stability – and the tradeoff is a lower rate of return, than say the stock market or venture capital.
But shouldn’t there be an incentive for banks to pull more of it in, given that people in the United States are watching their dollars in new ways?
The savings rate doesn’t have to be incredibly high, which sometimes happens when there is a concern of overheating and inflation (I think I’m describing this correctly), but it would be a welcome sign if it was higher.
And speaking of spending, did you see that Warren Buffett actually considered buying the Philadelphia Inquirer? It’s going through some rocky times.
The Wall Street Journal included that tidbit in one of its blogs. As I recall, he has wanted to stay away from investing new money in the newspaper industry in recent years.
On a side note, I dig the simplicity of his company’s Website – given his influence in the world.
Anyway, these days, I guess I don’t even have to be in an actual classroom with an economist to find answers to my questions.
I can just search the blogosphere.
