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WSJ Tries Blaming Economic Woes on People Being Frugal

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    WSJ Tries Blaming Economic Woes on People Being Frugal

    Rick and Noreen Capp recently reduced their credit-card debt, opened a savings account and stopped taking their two children to restaurants. Jessica and Alan Muir have started buying children's clothes at steep markdowns, splitting bulk-food purchases with other families and gathering their firewood instead of buying it for $200 a cord.

    As layoffs and store closures grip Boise, these two local families hope their newfound frugality will see them through the economic downturn. But this same thriftiness, embraced by families across the U.S., is also a major reason the downturn may not soon end. Americans, fresh off a decadeslong buying spree, are finally saving more and spending less -- just as the economy needs their dollars the most.

    Usually, frugality is good for individuals and for the economy. Savings serve as a reservoir of capital that can be used to finance investment, which helps raise a nation's standard of living. But in a recession, increased saving -- or its flip side, decreased spending -- can exacerbate the economy's woes. It's what economists call the "paradox of thrift...


    Hard-Hit Families Finally Start Saving, Aggravating Nation's Economic Woes - WSJ.com

    #2
    Amazing. All these years, the financial publications were moaning about the zero percent savings rate and how people were living beyond their means. Now that people have finally woken up and started cutting back, the same publications are moaning that folks aren't spending enough and are saving too much.

    There is an interesting/scary article in Time this week about the future of the Chinese economy. Essentially, it says that future success will depend on the Chinese adopting American spending habits and cutting back on their substantial (25% average) personal savings rate. Basically, they want the Chinese to make all of the same mistakes that Americans have been making all these years. When I read stuff like that, I really worry about the future of the world. If the American model of zero savings and sky high debt is what the rest of the world aspires to, we're heading for bigger problems than we already have.
    Steve

    * Despite the high cost of living, it remains very popular.
    * Why should I pay for my daughter's education when she already knows everything?
    * There are no shortcuts to anywhere worth going.

    Comment


      #3
      Letter to the WSJ:

      Dear Sir's and Madam's of the Wall Street Journal,

      Bite my financially-secure little hiney.

      Much Love,
      Kork13
      "Praestantia per minutus" ... "Acta non verba"

      Comment


        #4
        I agree with the article in that frugal behaviors will probably serve to lengthen this recession. However, in the long run, frugal behavior will benefit America.

        Our economy is so screwed up because it is has been depending on excessive over-spending of consumers, as it has grown to expect over the past decade. With retraction in that behavior, of course there will be bankrupcy, store closings, and retail cut backs. It's just an adjustment to a different level of consumer spending. If consumers can maintain an appropriate level of spending, the economy will catch up and sustain itself just fine--albeit with Wal-Marts and Starbucks every other block.

        Comment


          #5
          Originally posted by boosami View Post
          Our economy is so screwed up because it is has been depending on excessive over-spending of consumers, as it has grown to expect over the past decade.
          Honestly, I think that's really the problem here, and boosami, you hit it squarely on the head.

          The WSJ point is valid, because the recession likely will be lengthened due to a higher savings rate. However, I disagree with the authors in that it will be better for the nation's economy overall, in the long view.

          The other side of this is that looking at the history of America's consumer market, even when the savings rate increased, spending slowly picked back up over time. So as has been repeatedly said regarding our current economy, it's something that will need to be waited out.
          "Praestantia per minutus" ... "Acta non verba"

          Comment


            #6
            I read that article almost the minute it was posted. I think there was a line in there about people spending $117 for every $100 they earned for the past 8 years. Um Hello? And this financial crisis is a surprise? We can't sustain that. we need to become a lender nation instead of a debtor nation and the only way to do that is to have a citizenry with solid savings and net worth.

            It seems so obvious. I am sad for people losing their jobs, but I don't see what the alternatives are in the short term. There has to be some pain for us to get back on track.

            Comment


              #7
              It was interesting to see the data of some were spending $117 for every $100...I believe it just seeing some of the friends we have. And they are the first ones to cry when things go bad...yet they were the ones who ridiculed me for being frugal. It's fascinating that it's "cool" to be frugal now days!

              I especially love Kork's comment!

              Comment


                #8
                Well there are plenty of folks cutting back for fear of loosing their jobs or to pay down the debt they have racked up.

                Alot of people, who are well off, have stopped spending altogether because of what they see on the news each night. These folks will end up throttling the economy and probably end up putting themselves out of work too.

                If you need things, you should go out and buy them. Just be a smart shopper and don't waste money on things you don't really have a use for.

                Comment


                  #9
                  The Chinese government is trying to push its population to spend more and save less. I wish we had this problem.

                  Comment


                    #10
                    I like Kork's comment, too. Thing is, those of us that are financially secure may not really be all that secure. Up to now, the American consumer has accounted for 2/3ds of the economy. Either the pie will get smaller, taking businesses and jobs with it, or something else will fill the void, like government spending. What this has to mean, ultimately, is more taxes. So the net result is, if you don't spend it, they will simply take it from you.
                    We don't have control over what happens to GM, Citigroup, healthcare costs, gas prices, etc. either. Hold on for a ride.

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