Comments on: Does Penny-Pinching Encourage Economic Decline?

By: kitty

kitty — Sun, 30 Nov 2008 04:37:28 +0000

The issue is balance. Over-spending is stupid. Living as a pauper while having millions in a bank is stupid as well. One needs to have some balance – spend less than one earns yet do things one enjoys – within reason.

I don’t think the consumer spending now is down simply because “over-spenders” suddenly became frugal. After all spending is down across the board – Nordstrom sales down too.

I think there are multiple reasons for decline. a) there is more unemployment – unemployed people cut on spending b) there are more layoffs planned – everyone that expects to be laid off isn’t going to go and spend money c) there is fear among many of those who are still employed. Sure, some of these people may have been over-spenders, but some are those that live within their means but simply cut down on non-essentials because of fear d) a lot of people including and maybe especially rich that lost money in the market. The first reaction to it is to stop spending. So sure, some of the people that spend less are those that used to spend more than they have. But many simply cut down by for example saving 30% of their salary instead of 20% or 40% instead of 10%.

By: Frugalchick

Frugalchick — Sat, 29 Nov 2008 19:59:29 +0000

I agree with Mackenzie. We were spending way above our means and now that we are more mindful of our expenses, the economy will stumble until we reach a more balanced state.

By: Mackenzie

Mackenzie — Sat, 29 Nov 2008 16:42:15 +0000

Let’s be specific here. It’s not low spending that is causing the problem. Rather it’s the _reduction_ in spending. The problem is that economic growth for a very long time has been based in part on a high level of household deficit spending. It’s the base of the pyramid. But now that people are trying to be more responsible by saving more and spending less, the system is collapsing in on itself a bit–the base of the pyramid now has a smaller base, which makes it unstable and wobbly. If consumers had been spending within their means for the last 20 or 30 years, we probably wouldn’t be seeing this large of a reduction in consumer spending. After all, most people wouldn’t have been buying much more than they needed anyway. True, we wouldn’t have seen the ferocious economic growth that we did over the last few decades, but in this case we traded stability for prosperity.

In short, consumer spending is another bubble that is bursting.

By: Stephanie PTY

Stephanie PTY — Sat, 29 Nov 2008 16:13:20 +0000

Absolutely. Thank you for posting this! I’ve been running around with the frugal crowd for two years now, and even way back at (my) beginning, there were people wagging their finger at me, saying that I was bad for the economy. I was shocked! Really, the actions of a broke college student are unlikely to reflect on the whole economy. Maybe it was that fact that I was writing about it that bothered them?

Truth be told, it’s a shun for frugality that got us into this mess, and shunning it some more isn’t going to get us out. The only “economy” you help by overspending is your credit card company.