when i read this, i thought i was reading an onion satire piece, but noooooo, its the musings of a harvard economics professor...anyway, i thought you would enjoy this, being such a harvard business school fan <g>
economix.blogs.nytimes.com
February 17, 2009, 6:56 am
If You Got Money, It’s Time to Spend Some
By Edward L. Glaeser
Edward L. Glaeser is an economics professor at Harvard.
In the last eight years, Americans have spent an extraordinary amount of money and borrowed a lot to make that spending possible. Total outstanding consumer credit was $1.7 trillion in 2000; the current figure is $2.6 trillion. Residential mortgages totaled $5.6 trillion in 2000; today they total $12 trillion. Over the same period, the national debt increased from $5.7 trillion to $10.8 trillion.
All that borrowing set the stage for our current economic morass, and now thrift is back in vogue. In his inaugural address, President Obama called for a “new era of responsibility.” Consumer expenditures declined 1.1 percent in October, 0.8 percent in November and 1 percent in December. Puritan ghosts still whisper their warnings against profligacy in my part of the world, and I certainly hope that more Americans live within their means.
Yet President Obama clearly did not mean that everyone should stop spending. Certainly, the government itself is not about to start making a fetish of frugality. Today, the president is likely to sign a $787 billion stimulus package, including more than $550 billion in public spending. Many macroeconomists tell us that all that spending is needed to undo the effects of all that spending.
Within the private sector, as well, some should save and some should spend. Those Americans who borrowed too much, or are near their financial limits, should certainly cut back. The nation needs no more bankruptcies. Yet there are many Americans who spent the last eight years living within their means, and have plenty of resources left. For those Americans, the ones with cash in their bank accounts, this is the time to spend.
Cracking open the Champagne does not exactly feel in tune with today’s spirit of national austerity, but recessions get worse when prosperous people do not spend.In fact, if you can afford it, then this is exactly the moment to redo your kitchen or buy a car. Not only will you be able to get a good deal, but your spending will help revive the economy. The economist John Maynard Keynes convincingly argued 70 years ago that thrift was no virtue during a recession.
Despite the strength of the economic logic urging spending during a downturn, powerful psychological forces push in the opposite direction. America is hurting; thousands are losing their jobs. In today’s political climate, public displays of prosperity are the kind of thing that gets you lambasted by a Senate subcommittee.
Envy is not just a deadly sin, it is also an emotional reality. My colleague Erzo Luttmer finds that middle-income people who live around the rich are significantly less happy than middle-income people who have poorer neighbors. Today’s new fashion for frugality may reflect an awareness that showing off one’s prosperity imposes emotional costs on others.
How should upper income Americans balance the economic imperative to spend with the social benefits of restraint? I’ve got two recommendations. First, spend generously but discreetly. Buy things that are private and enjoy them as much as possible within a close circle of equally fortunate friends. This would be a great time to redo your master bathroom.
Second, consider becoming a more generous gift-giver. I am sure that your children, spouse, boyfriend, girlfriend, pet, has done something good that deserves a gift. Valentine’s Day was a great chance to splurge, but heck, what about a good round of Easter and Passover presents. April Fool’s Day calls for a round of humorous gifts, and May Day for a gift celebrating either spring or the Haymarket riot, depending on your political proclivities.
For the rest of us, let’s let envy take a holiday. Encourage your wealthy neighbors to buy new Cadillacs. Each car they buy will mean a little less bailout money that we’ll have to come up with. President Obama is right about the need for more responsibility, but for those of you who have been responsible, this is the time to disregard those puritanical whispers and buy something fun. |
