The Wisdom of the American People

Yesterday I read an article on five things missing from the stimulus plan. The Stimulus Plan: 5 Missing Pieces. No. 5 was: please tell us whether it is better for the country for us to save or to spend? (The rest of the "missing pieces" are well worth the read as well.)

Actually, the wisdom of the American people has answered this question. The household savings rate went from -2% sometime last year to +6% now. A nation full of households has decided that living well beyond our means is no longer a smart thing to do. The strange compulsion so many people had, to spend and spend and spend as if we were rich, as if the stock market would go up for ever, as if real estate price would climb into the stratosphere, is suddenly broken. Now we're suffering the hangover from years of excess. But who could ever believe double-digit growth for ever, in the sober light of morning....

The good we do by controlling our spending and paying off debt:
* With every payment we make, we reassure the banks and credit unions that they will not be left holding the bag.
* With every payment we make, we free up some capital for the banks and credit unions to lend to responsible people and businesses.
* With every payment we make, we reduce our household financial risk in case of unemployment, wage cuts, hourly cuts, health problems, and life's other unexpected financial challenges.

This is better for the country in the long run than for us to continue to run up debt supporting the "Retail Space Bubble" that has grown in the last few years. Based on truly unsustainable spending by the American "consumer" (a word I hate), chains opened up way too many new stores, and too many people started up new retail businesses.

It's sad when stores close and retail salespeople lost their McJobs. It's even sadder when someone has invested their life savings in starting a new business, well-thought-out or not, and has to close their doors. Running the gauntlet of the new frugality will mean that the best stores will survive--the ones that sell 1. quality items 2. we need at 3. reasonable prices. And the stores with a poor business model, or too much competition, will fail. This is the real world. The pie doesn't keep getting bigger forever.

Another example. A month or more ago, I was reading articles about what it would take to save the Big Three automakers. One class of article were interviews with leading economists and commentators. Most of them were not employees of the companies in question. They said, in general, that the Big Three need to push wages down, shed workers, and slip out of legacy commitments for health care and pensions, and that was all that would save them. The second class of article talked to individual people, the wise Americans. They said, "They need to start making cars that people want to buy." Bingo! You get the prize.

If the Big Three paid way less people way less money, cut out their pensions and medical insurance, and made cars people aren't interested in buying, they would still go belly-up. Joe Six-pack at the gas station knows that the price of gasoline will go back up. He is not very interested in buying a big gas-hog unless it is a necessity for his business or his large family. But the talking heads and the CEOs and CFOs still don't get it.

Now a little blast at the word "Consumer". A consumer is somebody that uses up resources. It is the opposite of producer, somebody who makes something, improves something, or saves something. If you start a bonfire and throw dollar bills onto it, or $200 athletic shoes, you are a consumer. Are we rightly called the Consumer Society? I hope not. At the end of World War II, with much of the world in shambles, the U.S. was the biggest producer of goods in the world. We could call ourselves a Producer Society then.

Let's just retire the word Consumer as applied to U.S. citizens. To a store you should be a Customer, not a Consumer. To an arts organization, you are a Patron (Matron?). We hope that more of us will have the chance to become Producers again; people need jobs, and the U.S. needs to produce things to restore balance to the world economy.

What can we do?
* Keep paying off debt.
* When you buy something, try to buy American-made. I keep harping on this. Let the stores you patronize know that you are interested in buying American-made goods and giving jobs to American workers.
* Buy local foods and support your local farmers and ranchers.
* Buy locally-made foods and suppport local small business (and encourage them to buy local ingredients).

The dollars we spend are small. But the dollars we all spend are a huge force in our country and the world, for good or ill. Put your dollars where your own best interests lie.

Recipes next time.....