6 ms·

New threat to the economy: Americans are saving like it's the 1980s

58 points by kabisote 6y ago

cmurf 6y ago
Profligate spending has been good for the consumption based economy, and bad for the vast majority of Americans who lack rainy day savings. Let alone something more serious. If self-reliance and personal fiscal responsibility is a "threat to the economy" then the economy is part of the problem.
- wwweston 6y ago
  We've gotten efficient enough of producing the basics that we don't need everyone or maybe even half of the available labor market to do it. That means either a good chunk of people have to be employed doing stuff driven by unnecessary spending, or they don't have employment. And we aren't great at distributing necessities to those who don't have employment. You could say the economy is part of the problem. Or you could just say demand drives employment, which means when demand for non-necessities drops, so does employment.
  - bobthepanda 6y ago
    Demand doesn't necessarily have to be US demand, though. For the past few decades US consumer demand has done a lot of heavy lifting for the global economy. Why can't more of this come from other big markets like Germany or China?
    - 411111111111111 6y ago
      The only product the USA produces inside its borders that's actually in demand globally is culture (movies, tv shows etc).
      - tonyedgecombe 6y ago
        and software (Google, Microsoft, Facebook, etc).
        411111111111111 6y ago
        I'd consider them multinational at best. They'll stop targeting USA first as soon as it's more profitable to do so. They did start there though, that's for sure!
      - redis_mlc 6y ago
        Boeing was the USA's largest exporter, until they forgot that the aerospace business requires, you know, aerospace engineering.
      - mrscottson 6y ago
        You forgot the USA's top major export...the dollar.
    - 082349872349872 6y ago
      If you want germans and chinese to import your production, you'll need to raise standards to meet theirs. For pork, this has already started happening: Hormel, JBS, and Tyson are no longer taking ractopamine-dosed hogs, even though they're still legal to sell to US consumers.
      - mrscottson 6y ago
        Chlorinated chicken is banned in many countries like the UK also..., we have to step up our food and food prep regulations to compete in those lucrative markets.
      - bobthepanda 6y ago
        To be quite clear, I'm not saying that only US goods need to be bought by Germans and Chinese. Those consumers are generally thrifty overall relative to their share of the global economy, and a global economy based on one country's consumer demand is simply not going to be a healthy one. High German savings was one of the things that led to the Euro crisis, since you cannot simultaneously run trade surpluses with all your neighbors and then be surprised when they are running deficits as a result. In the same vein, Chinese over-saving has led to a domestic property bubble that is a house of cards waiting to fall apart once people can invest their savings in something that isn't an apartment. As far as your point about global goods, I don't think that China, a place where hundreds of thousands of infants were poisoned due to illegal substitutions in baby formula, and people get told to look for reused "gutter oil" in street food, has a leg to stand on when it comes to food safety.
        082349872349872 6y ago
        You can start shorting chinese real estate: I was just reading the other day that WTI going negative had badly burned many chinese retail investors. (as for germany, I'd call that an argument against currency unification ... but that's an entirely different thread) If a country saves too much forex, one can slap sanctions on them for being a "currency manipulator". If a firm saves too much cash on hand, one can find a corporate raider (which the germans and chinese also have) to make a hostile LBO. However, for thrifty households, there don't appear to be any similar sticks, only carrots. How would you propose to incentivise german and chinese households to consume more than they do?
- 082349872349872 6y ago
  see https://en.wikipedia.org/wiki/The_Space_Merchants https://en.wikipedia.org/wiki/The_Space_Merchants for a 1952 prediction of where "the consumption based economy" winds up. the original CNN article is not far removed from the initial attitude of the protagonist...
Nasrudith 6y ago
Even with the macroeconomic effects as valid the mode of thinking is so painfully backwards and entitled in so many ways. 1. The job of the producers is to produce what the consumers want, not the consumers to accept whatever they want to produce! It is not a birthright to guaranteed profit from whatever they want to produce being sold. That has never existed. It brings to mind every idiot CEo of a business which failed to adapt bemoaning "murder by millenials" and wondering why they aren't getting new customers among those they insulted for products they don't even want in the first place. 2. If credit flow is required for the economic velocity it hints at an insufficient amount of solid currency in the economy and the interest costs are deterring spending exactly as intended. Even if taken for granted that the boost is needed doesn't mean that a consumer credit bubble is the best way to do so. 2a. If saving is not desired behavior retirement must be guaranteed in spite of lack of it. Asking for changes with no viable alternative is a fundamentally an unreasonable demand in negotiation. If you don't want a population explosion as 8 kids is the accessible way to be supported in old age then provide elder's pensions or stop complaining about population growth. 2b. Even if they could keep on using credit until they die the gains would be unrealized as the music stops even after they claimed the estate the debt would be written off. Continually rising consumer debts are a bubble because they are not immortal conglomerate entities like corporations or governments. 3. A drop in demand given available means of payment or credit implies a failure to at the same provide utility and provide a pathway to payment. Essentially the answer to the economic problem isn't more consumer debt and pretending this fine but solving the root problems in a profitable way.
- digitaltrees 6y ago
  Good analysis. Relying on credit to enable consumer spending happened in the mid 1920s as stagnant wages, and income inequality reduced the discretionary budget of most consumers. At best spending on credit is a temporary boost to the economy as consumers will eventually be tapped out and spending will stop. I agree with you, consumer debt isn't the solution, more affluent consumers is the solution. Raise wages, sell better products. Its like Henry Ford said when he gave a very large and controversial raise, your employees should be able to afford your products, if they can't, you might not have a market. As leaders of companies, we should return to the value system of generosity because that will actually support more market activity.
conductr 6y ago
As bad as it is, I feel like this is our chance to do some large scale norm changes. Eg. Shorter standard work week, more time off. No as some liberal/socialist agenda but as a way to reach full employment again. I don’t think we’re ready for basic income, but whatever the right stepping stone is, I think govt has a big enough reason to address it now. Edit: our/we = US, habit and context of article
- bobthepanda 6y ago
  Another thing is to stop tying healthcare to employment via tax benefits for employers. So many people are stuck in less than ideal jobs because the employer-provided healthcare system is nuts. On top of that many of these plans aren't even that great any more.
  - fxj 6y ago
    It seems that giving free healthcare, a free place to live, enough food and internet to everyone would be a good idea to stimulate the economy. Jobs would be generated by themselves if people then want a higher standard of living but no longer have to fight to survive.
- jeltz 6y ago
  > No as some liberal/socialist agenda but as a way to reach full employment again. You know that this is bascially the same reason socialists are in favor of shorter working weeks, right? Their "socialist agenda" is virtually the same as your reasoning.
  - conductr 6y ago
    I made that comment more so because normally our extremely polarized bipartisanship would prevent these types of changes from being made. Even if someone like Bernie was president, no way his agendas make through legislative branch. This depression will test our country’s ability to rally and cross political lines for the good of the people the way we have in the past. Something that previously was far left may seem viable to right leaning constituents when they’re struggling to meet basic needs.
chrisseaton 6y ago
Wow they criticise you when you spend and now they criticise you when you save.
- lonelappde 6y ago
  Can't eat money. https://en.wikipedia.org/wiki/Paradox_of_thrift https://en.wikipedia.org/wiki/Paradox_of_thrift
deleted 6y ago
[deleted]
renewiltord 6y ago
So stim everyone again. That's just a tax on the entire population that will give the poorest some spending power. Stim everyone really hard. Consumer-level QE, HM, whatever. Apply stim to forehead.
Qasaur 6y ago
It's only a problem if you subscribe to (in my opinion, the flawed and incredibly destructive) modern economic theory which is largely a continuation of the Keynesianism of the mid-20th century. Ask any economist why deflation is a bad thing and they will generally tell you that it is because they want to avoid a deflationary spiral with collapsing prices and high unemployment, which is why they want to ensure that consumers mindlessly consume and ensure that prices are kept "stable" (in their opinion, stable prices mean a positive inflation rate of 2%, which in my humble opinion does not make sense in pure mathematical terms). However, there are two fundamental and overlooked errors in the assumptions that underlie this theory: a) there is an assumption that consumers/agents are homogenous in their preferences and that people would rather starve to death than give up the opportunity to spend their money when it is worth more in the future. No sane person is going to wait one year to wait out some insignificant appreciation in the value of the money. People will still need to consume food and many of them would prefer to buy things now than in the future (consumer time preference, i.e. the desire to want things now rather than later, is always positive). For some inexplicable reason, time preference is completely ignored in the foundations of the theories that underpin modern monetary policy. b) the second main assumption is that money saved is money that is unproductive. This is false: savings lead to investment in the economy as resources that would otherwise be consumed are redirected into lengthening production structures in the economy. Put simply, this means that if more people put money in the bank, the bank will have more money to lend out and interest rates would fall, allowing entrepreneurs and companies to invest in production structures which in the long-run will lead to higher quality goods and cheaper prices. Of course, in the current highly distorted economy, deflation is disastrous as companies which are addicted to debt will need to be liquidated as there is no longer a steady stream of money coming in through inflation. This will likely lead to a severe recession, but this is not a bad thing as in the long-run the economy is better off as inefficient businesses who are addicted to debt and cheap money will no longer be able to operate, and clever entrepreneurs will be able to take their place. It is savings that build up capital structures in the economy, not consumption which largely distorts and even destroys said structures, and the faster we stop this destructive inflationary monetary policy the faster we return to sustainable, fair, and real economic growth.
- pintxo 6y ago
stunt 6y ago
People should save even in a healthy economy. You should always have emergency fund + additional saving to reach your goals. Investors do save as well. Much more than average consumers. The difference is that average consumer doesn’t have enough to buy assets or diversify their saving as much as investors can do.
cwhiz 6y ago
Bitch about people who didn’t save for an emergency expense or for retirement. Bitch about people who spend frivolously. And now, miraculously, bitch about people who are saving. This is not a complex problem. If you want people to spend money you must give them a proper safety net. That means pensions and health care.
- m463 6y ago
  From talking to others, a lot of people are saving money whether they want to or not. People are eating at home, preparing their own food. Nobody is driving and spending money on gas and tires. No living large with nights out on the town or big travel plans. I think lots of folks with their modest indoor activities or dog walking aren't spending just because, not because it is premeditated. Though a lot of my friends who are thrifty are complaining about nothing being on sale anymore.
  - RickJWagner 6y ago
    Not where I live. I'm seeing take-out restaurants thrive. My family usually eats out twice a week (plus a date lunch for wifey and I), but since corona we've upped it to 3 meals a week to help the restaurants. I think others might be doing similar things. I think there'll be a shakeout. Restaurants that serve takeout well will survive and eventually thrive, those that rely on sit-in will suffer and maybe close.
- samsonradu 6y ago
  Saving money used to be a respectable thing, now you’re just hoarding cash.
jacob9706 6y ago
"Average people are saving enough for an emergency." Am I missing something here?
digitaltrees 6y ago
On balance this is a good thing but any trend taken too far is a problem. That being said the time to safe is when the economy is good not in the heart of a crisis. It’s sad that human cognition is so short sided and blind to long term risk. It’s sad that 20 year olds ignore retirement and lose compound interest and then scramble to save in their 50s.
charliebrownau 6y ago
Cant have the GOYIM saving cash/silver/gold Better ban CASH and outlaw gold https://www.shtfplan.com/headline-news/land-of-the-free-stashing-gold-may-be-illegal-soon_05212020 https://www.shtfplan.com/headline-news/land-of-the-free-stas...

58 points by kabisote 6y ago

Profligate spending has been good for the consumption based economy, and bad for the vast majority of Americans who lack rainy day savings. Let alone something more serious. If self-reliance and personal fiscal responsibility is a "threat to the economy" then the economy is part of the problem.

wwweston 6y ago
We've gotten efficient enough of producing the basics that we don't need everyone or maybe even half of the available labor market to do it. That means either a good chunk of people have to be employed doing stuff driven by unnecessary spending, or they don't have employment. And we aren't great at distributing necessities to those who don't have employment. You could say the economy is part of the problem. Or you could just say demand drives employment, which means when demand for non-necessities drops, so does employment.
- bobthepanda 6y ago
  Demand doesn't necessarily have to be US demand, though. For the past few decades US consumer demand has done a lot of heavy lifting for the global economy. Why can't more of this come from other big markets like Germany or China?
  - 411111111111111 6y ago
    The only product the USA produces inside its borders that's actually in demand globally is culture (movies, tv shows etc).
    - tonyedgecombe 6y ago
      and software (Google, Microsoft, Facebook, etc).
      - 411111111111111 6y ago
        I'd consider them multinational at best. They'll stop targeting USA first as soon as it's more profitable to do so. They did start there though, that's for sure!
    - redis_mlc 6y ago
      Boeing was the USA's largest exporter, until they forgot that the aerospace business requires, you know, aerospace engineering.
    - mrscottson 6y ago
      You forgot the USA's top major export...the dollar.
  - 082349872349872 6y ago
    If you want germans and chinese to import your production, you'll need to raise standards to meet theirs. For pork, this has already started happening: Hormel, JBS, and Tyson are no longer taking ractopamine-dosed hogs, even though they're still legal to sell to US consumers.
    - mrscottson 6y ago
      Chlorinated chicken is banned in many countries like the UK also..., we have to step up our food and food prep regulations to compete in those lucrative markets.
    - bobthepanda 6y ago
      To be quite clear, I'm not saying that only US goods need to be bought by Germans and Chinese. Those consumers are generally thrifty overall relative to their share of the global economy, and a global economy based on one country's consumer demand is simply not going to be a healthy one. High German savings was one of the things that led to the Euro crisis, since you cannot simultaneously run trade surpluses with all your neighbors and then be surprised when they are running deficits as a result. In the same vein, Chinese over-saving has led to a domestic property bubble that is a house of cards waiting to fall apart once people can invest their savings in something that isn't an apartment. As far as your point about global goods, I don't think that China, a place where hundreds of thousands of infants were poisoned due to illegal substitutions in baby formula, and people get told to look for reused "gutter oil" in street food, has a leg to stand on when it comes to food safety.
      - 082349872349872 6y ago
        You can start shorting chinese real estate: I was just reading the other day that WTI going negative had badly burned many chinese retail investors. (as for germany, I'd call that an argument against currency unification ... but that's an entirely different thread) If a country saves too much forex, one can slap sanctions on them for being a "currency manipulator". If a firm saves too much cash on hand, one can find a corporate raider (which the germans and chinese also have) to make a hostile LBO. However, for thrifty households, there don't appear to be any similar sticks, only carrots. How would you propose to incentivise german and chinese households to consume more than they do?
082349872349872 6y ago
see https://en.wikipedia.org/wiki/The_Space_Merchants https://en.wikipedia.org/wiki/The_Space_Merchants for a 1952 prediction of where "the consumption based economy" winds up. the original CNN article is not far removed from the initial attitude of the protagonist...

Nasrudith 6y ago

Even with the macroeconomic effects as valid the mode of thinking is so painfully backwards and entitled in so many ways. 1. The job of the producers is to produce what the consumers want, not the consumers to accept whatever they want to produce! It is not a birthright to guaranteed profit from whatever they want to produce being sold. That has never existed. It brings to mind every idiot CEo of a business which failed to adapt bemoaning "murder by millenials" and wondering why they aren't getting new customers among those they insulted for products they don't even want in the first place. 2. If credit flow is required for the economic velocity it hints at an insufficient amount of solid currency in the economy and the interest costs are deterring spending exactly as intended. Even if taken for granted that the boost is needed doesn't mean that a consumer credit bubble is the best way to do so. 2a. If saving is not desired behavior retirement must be guaranteed in spite of lack of it. Asking for changes with no viable alternative is a fundamentally an unreasonable demand in negotiation. If you don't want a population explosion as 8 kids is the accessible way to be supported in old age then provide elder's pensions or stop complaining about population growth. 2b. Even if they could keep on using credit until they die the gains would be unrealized as the music stops even after they claimed the estate the debt would be written off. Continually rising consumer debts are a bubble because they are not immortal conglomerate entities like corporations or governments. 3. A drop in demand given available means of payment or credit implies a failure to at the same provide utility and provide a pathway to payment. Essentially the answer to the economic problem isn't more consumer debt and pretending this fine but solving the root problems in a profitable way.

digitaltrees 6y ago
Good analysis. Relying on credit to enable consumer spending happened in the mid 1920s as stagnant wages, and income inequality reduced the discretionary budget of most consumers. At best spending on credit is a temporary boost to the economy as consumers will eventually be tapped out and spending will stop. I agree with you, consumer debt isn't the solution, more affluent consumers is the solution. Raise wages, sell better products. Its like Henry Ford said when he gave a very large and controversial raise, your employees should be able to afford your products, if they can't, you might not have a market. As leaders of companies, we should return to the value system of generosity because that will actually support more market activity.

conductr 6y ago

As bad as it is, I feel like this is our chance to do some large scale norm changes. Eg. Shorter standard work week, more time off. No as some liberal/socialist agenda but as a way to reach full employment again. I don’t think we’re ready for basic income, but whatever the right stepping stone is, I think govt has a big enough reason to address it now. Edit: our/we = US, habit and context of article

bobthepanda 6y ago
Another thing is to stop tying healthcare to employment via tax benefits for employers. So many people are stuck in less than ideal jobs because the employer-provided healthcare system is nuts. On top of that many of these plans aren't even that great any more.
- fxj 6y ago
  It seems that giving free healthcare, a free place to live, enough food and internet to everyone would be a good idea to stimulate the economy. Jobs would be generated by themselves if people then want a higher standard of living but no longer have to fight to survive.
jeltz 6y ago
> No as some liberal/socialist agenda but as a way to reach full employment again. You know that this is bascially the same reason socialists are in favor of shorter working weeks, right? Their "socialist agenda" is virtually the same as your reasoning.
- conductr 6y ago
  I made that comment more so because normally our extremely polarized bipartisanship would prevent these types of changes from being made. Even if someone like Bernie was president, no way his agendas make through legislative branch. This depression will test our country’s ability to rally and cross political lines for the good of the people the way we have in the past. Something that previously was far left may seem viable to right leaning constituents when they’re struggling to meet basic needs.

chrisseaton 6y ago

Wow they criticise you when you spend and now they criticise you when you save.

lonelappde 6y ago
Can't eat money. https://en.wikipedia.org/wiki/Paradox_of_thrift https://en.wikipedia.org/wiki/Paradox_of_thrift

deleted 6y ago

[deleted]

renewiltord 6y ago

So stim everyone again. That's just a tax on the entire population that will give the poorest some spending power. Stim everyone really hard. Consumer-level QE, HM, whatever. Apply stim to forehead.

Qasaur 6y ago

It's only a problem if you subscribe to (in my opinion, the flawed and incredibly destructive) modern economic theory which is largely a continuation of the Keynesianism of the mid-20th century. Ask any economist why deflation is a bad thing and they will generally tell you that it is because they want to avoid a deflationary spiral with collapsing prices and high unemployment, which is why they want to ensure that consumers mindlessly consume and ensure that prices are kept "stable" (in their opinion, stable prices mean a positive inflation rate of 2%, which in my humble opinion does not make sense in pure mathematical terms). However, there are two fundamental and overlooked errors in the assumptions that underlie this theory: a) there is an assumption that consumers/agents are homogenous in their preferences and that people would rather starve to death than give up the opportunity to spend their money when it is worth more in the future. No sane person is going to wait one year to wait out some insignificant appreciation in the value of the money. People will still need to consume food and many of them would prefer to buy things now than in the future (consumer time preference, i.e. the desire to want things now rather than later, is always positive). For some inexplicable reason, time preference is completely ignored in the foundations of the theories that underpin modern monetary policy. b) the second main assumption is that money saved is money that is unproductive. This is false: savings lead to investment in the economy as resources that would otherwise be consumed are redirected into lengthening production structures in the economy. Put simply, this means that if more people put money in the bank, the bank will have more money to lend out and interest rates would fall, allowing entrepreneurs and companies to invest in production structures which in the long-run will lead to higher quality goods and cheaper prices. Of course, in the current highly distorted economy, deflation is disastrous as companies which are addicted to debt will need to be liquidated as there is no longer a steady stream of money coming in through inflation. This will likely lead to a severe recession, but this is not a bad thing as in the long-run the economy is better off as inefficient businesses who are addicted to debt and cheap money will no longer be able to operate, and clever entrepreneurs will be able to take their place. It is savings that build up capital structures in the economy, not consumption which largely distorts and even destroys said structures, and the faster we stop this destructive inflationary monetary policy the faster we return to sustainable, fair, and real economic growth.

pintxo 6y ago

stunt 6y ago

People should save even in a healthy economy. You should always have emergency fund + additional saving to reach your goals. Investors do save as well. Much more than average consumers. The difference is that average consumer doesn’t have enough to buy assets or diversify their saving as much as investors can do.

cwhiz 6y ago

Bitch about people who didn’t save for an emergency expense or for retirement. Bitch about people who spend frivolously. And now, miraculously, bitch about people who are saving. This is not a complex problem. If you want people to spend money you must give them a proper safety net. That means pensions and health care.

m463 6y ago
From talking to others, a lot of people are saving money whether they want to or not. People are eating at home, preparing their own food. Nobody is driving and spending money on gas and tires. No living large with nights out on the town or big travel plans. I think lots of folks with their modest indoor activities or dog walking aren't spending just because, not because it is premeditated. Though a lot of my friends who are thrifty are complaining about nothing being on sale anymore.
- RickJWagner 6y ago
  Not where I live. I'm seeing take-out restaurants thrive. My family usually eats out twice a week (plus a date lunch for wifey and I), but since corona we've upped it to 3 meals a week to help the restaurants. I think others might be doing similar things. I think there'll be a shakeout. Restaurants that serve takeout well will survive and eventually thrive, those that rely on sit-in will suffer and maybe close.
samsonradu 6y ago
Saving money used to be a respectable thing, now you’re just hoarding cash.

jacob9706 6y ago

"Average people are saving enough for an emergency." Am I missing something here?

digitaltrees 6y ago

On balance this is a good thing but any trend taken too far is a problem. That being said the time to safe is when the economy is good not in the heart of a crisis. It’s sad that human cognition is so short sided and blind to long term risk. It’s sad that 20 year olds ignore retirement and lose compound interest and then scramble to save in their 50s.

charliebrownau 6y ago

Cant have the GOYIM saving cash/silver/gold Better ban CASH and outlaw gold https://www.shtfplan.com/headline-news/land-of-the-free-stashing-gold-may-be-illegal-soon_05212020 https://www.shtfplan.com/headline-news/land-of-the-free-stas...