Our Duty to Spend? (2001)

[Otter Mii-kun]

This late 2001 article covers another economic fallacy-that (hyper)consumerism is what keeps an economy going, especially the US.

Spending oneself into debt by maxing out credit cards and taking out loans that (s)he cannot afford to pay back is not good for the economy, despite what many pundits in the mainstream media claim. Whenever they report on any fall in consumer spending-it's always doom-and-gloom, and that the government (including the Federal Reserve) must take action to "stimulate the economy" by stimulating spending-even if it means cutting interest rates well below market levels or printing billions upon billions of dollars and writing up "tax rebate" stimulus checks.
It's bad enough our government is leading the way with overspending into debt that has grown so large, it probably can never be repaid.
This "get out and shop" and "max out your credit cards" mentality helped get us into this mess in the first place. Now we're facing the consequences with the credit crunch and Congress's attempt to fix it by bailing out Wall Street at our expense.

From http://www.lewrockwell.com/orig/mathews6.html :

Our Duty to Spend?
by Don Mathews

Here’s an ironic quotation:

"The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist."

John Maynard Keynes, a famous British economist, wrote those in words in a book published in 1936.

The words are as true today as they were back then: in the worldly realm of political economy, many practical people today are indeed the slaves of some defunct economist.

The irony is the defunct economist is John Maynard Keynes.

More than any other economist, Keynes is responsible for the notion that recessions are caused by underspending in the economy. The notion is hugely mistaken.

It’s also hugely popular. Open a newspaper or turn on the TV news these days and you’re sure to find some pundit or public official exhorting consumers – which would be us – to get out there in these troubled times and spend, spend, spend.

Some go so far as to suggest that, by God, it’s our civic duty to go out and spend because that’s the only way to get the economy rolling again.

One need not be an economist to recognize that something here is really out of whack. When did saving become such a bad thing? Is the economy harmed by supplying it with financial capital? And is thrift no longer a virtue?

If thrift is now a vice, then many Americans, in the current recession, are guilty. But some are more guilty than others. The most guilty are easy to identify.

Since March, unemployment has increased by several million people. No doubt the newly unemployed have sharply cut back on their spending.

Should these people get back on the stick and go on a shopping spree? Is that what a true economic patriot would do after losing his job?

People with some savings invested in stocks or in stock mutual funds have no doubt cut back on their spending, too. Young people saving for their first home, parents saving for their children’s college education, retired folks – these sorts of people.

Take, for example, a retired couple who worked hard in their younger years and saved when they could and amassed a portfolio of NASDAQ stocks worth, say, $100,000 in March of 2000. Today that portfolio would be worth about $38,000.

Should this couple now go out spend like there’s no tomorrow? Would that be good?

How about the many businesses whose profits are puny today because they were sucked in by the Federal Reserve’s easy money and all the "new economy" hype and overinvested in new technology during the 1990s? Should these firms disregard their past errors and load up on new technology all over again?

Or perhaps the rest of us have a duty to take up the slack. Never mind that consumer debt has gone through the roof. When economic duty calls, we must answer, even if the cost is bankruptcy, right?

Exhorting people to spend, spend, spend during a recession to get the economy rolling again is like exhorting some one who’s sick with pneumonia to go for a jog because he needs to start breathing deeper again.

The notion that recessions are caused by underspending is wrong, never mind defunct. It mistakes effect for cause. A decrease in spending during a recession is an effect of recession, not a cause. The causes run much deeper.

When any investment bubble bursts and a recession results, the Federal Reserve tries everything they can to prop up the bubble while the financial pundits in the media always tell us how bad falling prices (and deflation, in general) are-and that the government must act immediately to stave off "another Great Depression" or similar crisis.

December 8, 2001

Don Mathews is a columnist for the Brunswick (Ga.) News.

Copyright © 2001 LewRockwell.com

Bottom Line—There is simply no reason why our economy should be dependent on consumerism, buying cheap Chinese-made goods at Wal-Mart, or the financial sector and Wall Street.
Over-extending debt and giving in to Fed-created boom-bust cycles only hurts us in the long run, and we can especially see it now with the crisis in the financial sector.

~Otter Mii-kun