Tuesday, April 14, 2009

An Economist Says Saving is a Good Idea - Really!

The first item in Wired magazine's March 23, 2009, Mr. Know-It-All column ("Mr. Know-It-All: Feeding a Bear Market, YouTubing High School Athletes, Laying Dad's Brain to Res") caught my eye this morning. So did the last one, about a fellow whose wife had his head frozen - but that's not quite so relevant to business.

The lead item started with: "I've got a secure job, but this bear market gives me the creeps. Is it my duty to buy a new Jet Ski to help the economy?..."

If you own a store that sells Jet Skis, the advice we're hearing to go out and spend, spend, spend sounds pretty good.

Warning! Middle-Aged Reminiscences Ahead!

I was born in the Truman administration, my parents survived the Great Depression, and learned a few things from the experience. They were far from mattress-stuffers who didn't trust banks, but they had a modified 'if you don't need it, don't buy it' approach that kept me from enjoying all fifties and sixties equivalents of Nintendo and X-Box. They weren't tightwads by any means - but they didn't waste money, food, or water. And their definition of "waste" included "keeping up with the Joneses."

An Economist Says Saving is a Good Idea?!

My notion of what economists are like was formed by reading about Keynesian economics: that famous brainchild of John Maynard Keynes, that Cambridge Math major who studied for a year under a couple of people who presumably knew something about economics.

The bottom line of Keynesian economics seems to be that letting private sector entrepreneurs run around loose was bad. Centralization is good: as long as it involves a government-run central bank and what's euphemistically called 'fiscal policy decisions' by the federal govenment to control business. The idea was that with Big Brother in control, the business cycle would settle into nice, flat line.

Keynesian economics was enormously popular - and the more I learned about it, the lower my estimation of economists sank.

My guess is that Sam Allgood, Associate Professor of Economics, University of Nebraska-Lincoln, is doomed to live out his career far from the hallowed halls of ivy and hemp in the northeast. His notions about economics make sense.

From Wired:

"...'Saving is essential for economic growth, says Sam Allgood, an economist at the University of Nebraska-Lincoln. 'The money we save and invest is used by businesses to expand, update, or just get started.'..."

Allowing our money to be used by lending institutions to finance business growth? Without an all-wise federal agency to make sure they spend it the right way? That's close to blasphemy!

And, to me, sounds like solid good sense. But then, I'm one of those people who think that a surprising number of people - given an opportunity - will spend their money with a bit of sense.

I'm concerned, though that it's going to take a reality check like the Great Depression to produce a generation of parents who have a vague notion of which end is up. But that's another topic.


askcherlock said...

I seems proper to save but with the economy still sagging, many are finding it difficult. If we start spending prudently, wouldn't that "stimulate" the economy? Possibly all things in moderation for awhile might behoove us.

Brian, aka Nanoc, aka Norski said...


I agree with the 'moderation' idea - encouraging spending at the expense of saving would be a great short-term gain for some retailers and service businesses.

On the other hand, they couldn't grow without the funds that saving make available.

Aside from an all-too-typical level of cluelessness, I suspect that America's leaders - some of them - prefer quick fixes to long-term repairs.

Actually, I think we'd do fine in the long run if the feds would get out of the way.

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