Could Saving More Really Boost the Economy?


We live in a consumer economy. We live in one of the if the biggest consumer economies on the planet; perhaps in history and that means we are programmed to spend money. The basic model here is get an education, get a good job and then start spending most of what you earn, which  drives the economy. If consumer spending and the economy are up, then Wall Street is happy and if Wall Street is happy, the world is happy and businesses are happy and hire more and invest more and we all do well. Unfortunately, as most people now know, especially since the 2008 recession, that’s not really how things work anymore.

Consumer spending is up as is consumer confidence and even the housing market has rebounded, but  the unemployment rate is still stubbornly hanging in at 7-8 percent and while new jobs are being created; they’re low-wage, temporary or lower paying than ever with fewer, if any, benefits. Why? Simple, business leaders are hyper-conservative and won’t make any change that might threaten the stock price or their own exalted status and perks. Thus, we’re all told to work smarter, not harder, which is code for shut up and crank it out and just be happy you have a job.

Underneath all this are some economic facts that suggest that if we all saved more and spent less, then maybe, just maybe, things would improve in the long term. And that’s really the issue here; long term versus short term. Generally speaking, American business lives and dies by quarterly results. If results are good, executives get bonuses, stockholders get dividends and we get to keep our jobs. If things go south, lay-offs occur as the quickest, simplest way to bump the stock price back to a happier place so the bonuses and dividends keep going. But some economists suggest that if we all saved more, then more money would be available to lend to companies and they would start to hire more, invest more and things would finally really start to grow in the long term.

On an individual basis, if a person has more money saved and fewer debts, they do better. And one way to do that is spend less on optional things, save more and pay things off as quickly as possible. Most financial experts tell people to save a certain portion of their income for emergencies (lay-offs, illness, accidents) and those same experts advise people to minimize debt and live within their means. If everyone started to follow that advice, maybe we would all be better off. It’s certainly worth a try as the current situation only seems to be benefiting the wealthy and we’re all paying for it.

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