By Henry K. Hebeler at Marketwatch
News media have learned to headline a reduction in consumption as a bad thing since it often comes before possible job losses, a poor stock market or a reduction in local, state and federal tax receipts.
Articles in The Wall Street Journal like “U.S. Consumers Remain Cautious,” point out that consumption is two-thirds of our economy. Hence it’s good to encourage spending. This is very short-range thinking. When people aren’t consuming, they are saving. You can’t simultaneously spend and save the same dollar.
National savings are a disgrace. The median savings for 55 years and older is only $33,000, according to the U.S. Government Accountability Office. After World War II, people saved about 10% of their after-tax income. Savings rates are now only 5%. Most of that 5% is from higher income people. We have to cut spending, hence consumption, by at least 5% as does the government or future generations will be unable to pay interest on the government debt, much less the principal.
During World War II, households saved over 20% both because things like new cars and appliances weren’t available and because saving was patriotic. Now the government wants us to spend, not save, to make the economy look good. Industry enthusiastically applauds.
When I was young, our family had no credit cards and we were encouraged to save 10% of our income. Then, a very large percentage of people also benefited from their employer’s defined benefit programs, i.e., pensions. Now, a better savings target is more like 15% due to the reduction of firms offering pensions. Instead of pensions, employers now offer defined contribution plans like a 401(k)— which only about half of the employees use.
When older, I headed planning for Boeing for six years. Operational plans were short-term, largely aimed at delivering a quality
Originally appeared at: http://davidstockmanscontracorner.com/when-a-reduction-in-consumption-is-a-good-thing/
When A Reduction In Consumption Is A Good Thing is a story from: BitcoinWarrior.net