by Mariam Williams
“You see, when this recession began, many families sat around their kitchen table and tried to figure out where they could cut back. So do many businesses. That is a completely responsible and understandable reaction. But if every family in America cuts back, then no one is spending any money, which means there are more layoffs, and the economy gets even worse.” – President Obama, Speech on the economy at Georgetown University, April 14, 2009, about 10 minutes in.
Is frugality bad for the economy?
That’s the question author Amy Dacyzyn poses on page 61 of The Tightwad Gazette II. Here’s what’s crazy: The book was published in 1995 and references a 1992 book by Ross Perot entitled, United We Stand, for further reading on how rethinking spending can lead to a more stable economy.
The question remains relevant because we keep getting ourselves into recessions, and counting on spending to get ourselves out and to sustain our economy. I attended a business webinar today in which speaker economic futurist Jeff Thredgold stressed that the tide has begun to turn in the economy. He and other experts are now predicting that we will move out of the current recession, which officially began in December 2007, before the end of 2009. Although this recession has lasted longer than those of 1980 and the early 1990s and unemployment may still increase to over 10%, the severity has begun to level off. The stock market shows signs that consumer confidence is starting to build again, and that’s critical to our economy; seventy percent of our national income is determined by consumer spending.
Here’s the thing that’s really hitting us with a national unemployment rate of 8.5 percent: not all of that spending is from hard-earned money. In 2008, 65% of our spending was dictated by wages and salaries, down from 80% from 1980 to 2007. That means we rely on credit for 35% of our spending. Those whose credit cards remain open during unemployment-because if a bank suspects you won’t be able to make your payments, they can cut you off at any time, or raise your interest rates, for any reason really, without notice-will likely continue to use them, but not on the vacations, appliances, clothing, and entertainment they did before.
If it lasts long enough, the forced frugality of the current recession could change American society as a whole from greedy, credit-burdened consumerists who work to get more stuff they can’t enjoy because they’re working too much to pay off the debt they borrowed to get the stuff, to a society that values the bare necessities, the earth, and interpersonal experiences. As Marian Salzman, the chief marketing officer of Porter Novelli, a public-relations company, said in a story published last month in U.S. News & World Report, “[T]here is an anti-bling thing going on.”
I heard much of the same on the radio show State of Affairs last month. People have shifted their dollars to maintenance, “do it yourself” projects, anything that will help them save money at a time when they fear they might not have a job forever, or when they know that a home equity loan is impossible on an upside down house. The savings rate has gone from -1% to 5%. People are tracking their spending, learning how to prioritize, and learning how to define what’s really important. We’re learning lessons that can bring down a capitalist economy.
Greed has employed me. I don’t understand why auto makers roll out a new version of every model of every make every year, or why most drivers get bored with their car after three years and feel the need to swap one vehicle they don’t own yet for another one they never will, but I made more money per month selling cars than I have per month at any other job. I hated wrapping overpriced presents for ungrateful, rich snobs in Seven jeans and Juicy Couture jogging suits who routinely spent over $1000 a week in a southern California Bloomingdale’s and who threw tantrums over restrictions on the 20 percent savings cards that cost them a $5 charitable donation once a year, but without their obsession over obtaining the latest styles before everyone else and at regular price, I would not have been able to eat as I nurtured my showbiz habit. I can’t tell you how many commercials I wrote as a radio copywriter advertising clothing sales, furniture with easy financing and guaranteed credit approval, or specials on custom wheels, sound systems, and rims. Those same marketers’ holding back their ad dollars led to my current state and is presently sending newspapers and other publications into bankruptcy. One of the comments in the pile Oprah’s website collected after Suze Orman’s last financial show was from an irate spa owner, appalled at Orman’s advice to cut your spending to the “bare bones,” or as the commenter saw it, put small business owners out of business.
Our country is at a crossroads right now. The greed that unregulated free enterprise bred has screwed us, but a radically new system is still too hard for people not yet suffering to imagine. I’m not even sure that the government should take charge of or be heavily involved in the overseeing of corporations, and I don’t know why I’m not sure. Perhaps because I know and admire several smart, honest women who own their own businesses and feel like they deserve to revel in their success. Perhaps because I know that money is a motivator and that it’s employed me. Perhaps because I like paying low prices more than I care about the exploitation of workers. (Of course, if I were earning enough money to only support local small businesses, I would.) Perhaps because I think our government officials are just as fallible as everyone else, and if they don’t mess up a new system with their own disagreements or errors in judgment, a person with greater ingenuity will buy them out.
The Obama Administration could be on the right track anyway. Keynesian economic theory suggests that we spent our way out of the Great Depression with federal stimulus packages that increased disposable income. History also shows us that we tend to revert back to our old ways once the tough times are over. Most of us were spending beyond our means, but at least we had some means, and once those means are restored to their previous levels-and for many industries, or people willing to learn new skills, they will be (even before the end of the year!)-most us will revert back to credit and debt. Of course, massive debt isn’t entirely the consumer’s fault; when credit card companies and banks can change your interest rates on a whim, manageable debt becomes unbearable. If corporate greed is somewhat regulated when the hard times are over this time, we might have even more confidence in our plastic cards.
Amy Dacyzyn believes that if we as a society were able to save more money, we would be a better society in three ways: 1) we would have more venture capital to start businesses; 2) we would have less federal debt and lower taxes because we wouldn’t be paying off our own bad decisions; and 3) we would be able to focus on real causes of economic problems, like the outsourcing of manufacturing jobs to foreign countries.
I’m hoping that the story from U.S. News & World Report is true and that our frugality may actually become so ingrained that we question every purchase and use more cash. I’m concerned about just how our economy will restructure itself if we’re not dependent on the sale and marketing of unnecessary stuff, but if the trend continues, or if we fall quickly into another recession after this one is over, we’ll have to find a new way. And I don’t think that’s a bad thing.
What are YOUR plans for your money after you bounce back?
See a transcript of the president’s speech from last week here.
© Mariam Williams, aka The Pink-Slipped Girl, and The Pink Slip Blog – Living Life Laid Off, 2009. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Mariam Williams and The Pink Slip Blog – Living Life Laid Off or http://livinglifelaidoff.com, with appropriate and specific direction to the original content. Any use and/or duplication of any photo contained within this blog without express and written permission from Mariam Williams is strictly prohibited.