Howard Davidowitz, chairman of New York-based retail consultant and investment bank Davidowitz & Associates wrote: |
People are so scared they're starting to save
What? People are taking responsibility for themselves and not relying on credit? This is a good thing. Now I realize that this won't help the economy quickly but when people feel safe they will again spend.
It is a very good thing that people are saving. Only Keynesians think you become poorer by saving.
Saving is how you fund future consumption after all.
Yes, there's a particularly pernicious mindset that insists that the problem is only that people aren't spending and don't consider how people are going to pay for the spending. Those who sell debt have a stake in it, as River pointed out, but it is a mindset not confined to bankers. The entire government financial apparatus shares it. That's the whole theory of the bailouts in the first place - that if you give people money they will therefore spend it and therefore everything will be fine.
The bailouts of last May were interesting because some policy advisors were actually worried that people would take the government checks and use them to pay off debts instead of buy flatscreen televisions. The bailouts of September, going to the banks instead of the people, had a similar worry from policy wonks because the banks used them to shore up bad loans instead of making new loans.
Meanwhile those same wonks who want us to go out and spend more are terrified by the mild deflation that recently occured. The fear is that given even the tiniest amount of deflation all spending will immediately stop because people will wait for prices to drop even more until all prices are zero. The reality is that when prices are too high deflation is necessary to readjust appropriately and people will be more inclined to spend when prices fall, and will make delayed purchases now in many cases even if prices are going to fall more. I did that with my house purchase. I see even better deals on the market, but my need for a house outweighed a few more months wait.
Those wonks really need to get their priorities straight, but I suspect I know what their priorities are. Inflation means you had better spend today because prices will be higher tomorrow, and they want you to spend everything today and go into debt.
A sensible attitude towards personal budgeting would spell disaster for those who make a living off of debt and inflation.