Economists are saying that American's are not spending money the way they used to and that this is bad for us during this recession. However, I say that we should stop spending, period, we should stop buying. Also, let me mention this, I have friends that knicknamed me the Bag Lady. Yes I am thrifty. My reason for saying this is based on the basic economic theory, and economics is a theory, of supply and demand. This means if you stop buying then the prices of these items will have to come down. The problem with our economy is inflation, the price of everything is astronomical. Gas prices went up, then the prices of everything else went up. This was based on the fact that gas is now higher and it costs more to get products to the market. Well the price of gas came down, but the price of everything else stayed the same.
If we really want to fix the economy we will stop spending money on things we do not need. Paul Taylor and his family stopped indulging in fast food meals and trips to the movies. They are doing their dining and entertaining in house now. This is a good thing. It is less expensive to rent a movie and buy popcorn from the grocery store than it is to go out to see a movie. So if everyone across the nation does this then the price of going to the movie and the price of eating out will have to come down.
Esther Leiderman still goes to the opera, but she is getting seats that are $30.00 cheaper. In addition, she stopped buying costume jewelry and is selling what she has at consignment shops. Michelle Gardner saves about $100.00 a week by not buying, “shoes, clothes, and unnecessary stuff”.
Across the region, people are tightening up and hunkering down, even with the holidays approaching. They are doing this until the economy starts moving again. I am saying continue to do this whether or not the economy starts humming again. Nationally, the personal savings rate is going up after two decades of decline.
Economists are saying this is great for consumers, but not necessarily good for the country. This is good for the country, regardless of what economists say. The price of housing is too much, the price of rent is too much, people can not even afford to live. If you do not make at least $40,000 a year in this country you are living in poverty. What they aren't telling you is that the poverty rate has not been raised since around 1962. At that time it was around $16,000 a year. L. J. Shrum, a Texas professor who is president-elect of the Society for Consumer Psychology says, “It's a fundamental contradiction. Our economy is better off when we spend, but we are in this current economic mess because of the propensity of people not to save and to spend too much and to borrow in order to spend more.”
American's seem to follow the pattern of our own Government. Government is buying now and paying later which creates massive amounts of debt. American people do the same thing they want to buy now and pay later, creating debt for themselves. My personal theory is that we should all attempt to live debt free. This of course means that we might have to do without. Doing without never killed anyone and you would be surprised what you need and don't need, what you can live without. Economists and politicians are sending mixed messages here. They are saying be more prudent with your personal finances, but please keep spending.
Locally, shoppers are saying they have got the thrift part down. The idea that we should shell out money to revive the economy is landing with a dull thud. Nathan Whelan, 34, a crane mechanic from Chesapeake says, “I don't see how we can spend and save at the same time. People are spending money they don't have, they are spending bill money.” Economists say consumer spending must remain strong to lift the economy.
Economists and the Government always want to play with the economy. I learned in college that the economy will fix itself if everyone leaves it alone. They want to raise the minimum wage, cut interest rates, all the things we see them doing is them putting their hands in the economy. If people stop spending and stop buying then the prices of items will have to come down and the economy will fix itself. It is called the multiplier effect, a dollar spent in a store ripples across the economy, bringing more dollars to workers and other businesses, says Macki Sissoko, an associate professor of economics at Norfolk State University. James Koch, an economist at Old Dominion University says that the more people save the easier it will be for them to buy cars and houses down the road. I agree with this theory. Mr. Koch says that consumer confidence affects the economy and it does. When people don't spend it causes the economy to contract.
President Obama has initiated programs to assist both spending and saving, although the spending programs came first and have drawn more visibility. We had the cash for clunkers program that offered up to $4,500 credit to trade in an old vehicle for a new one. While 690,000 cars were sold, however, critics complained that the Asian automakers were the primary beneficiaries and according to Edmunds.com 560,000 of these vehicles would have been bought anyway. David Cole, chairman of the Center for Automotive Research in Michigan said that 39,000 automotive jobs were saved.
Congress approved the extension of the $8,000 tax credit for first time home buyers through April and added a $6,500 credit toward the purchase of a replacement house for people that have owned a home for at least five years. The IRS estimates that at least 1.4 million people have used the benefit for first time home buyers. I see these young people buying houses that are way over priced and then they never stop to consider the what if, what if something happens, what if I lose my job, what if I get sick and they end up not actually buying a house, but renting it. They are spending $1,400 a month on a mortgage and then at some point they figure out that they can not afford the house. All the money they have paid in mortgage payments turns out to be one big waste because they then have to sell the house. Then they have difficulty selling the house and getting what they paid for it, so it is money that they wasted.
On the saving side, Obama in September announced plans to provide automatic enrollment in retirement plans for employees of small businesses. In addition, this included depositing tax funds into these accounts. Sissoko says Cash for Clunkers and homebuyers credits were “temporary fixes”, in other words they put a band aid on it, to get past the recession. Koch, says he wonders if they are “putting us on a sound footing in the long term.” Koch says that Obama must do more to promote “optimal behavior,” such as the 401(k) incentives. “In general anything that encourages people to not over spend/over consume is a good idea. It is however, difficult for this administration or any administration to sent out two messages at once that seem to conflict.”
Sissoko said “people are feeling less wealthy than before and are intending to save more of their current income and trying to pay off their debt”. Locally, consumers are adopting the economic religion of thrift. Leiderman, the opera goer says she worries about her investment income and the lack of a cost of living increase in Social Security next year. She has cut expenses from opera tickets to gas to food. Leiderman says she has found that she doesn't really need the things she was buying, she was trying to buy herself love.
Darceline Harris is a 58 year old retired social worker in Norfolk. She was taught early that a “penny saved is a penny earned”. Her thriftiness allowed her to retire early and donate to charities. She enjoys a few luxuries but even then she engages in restraint. This year she wanted to buy a Cadillac but waited until the price fell below $40,000. She says she wanted it, but she wanted it at her price.
For the majority of us the spend or save theory is a moot point. Lisa Sorey, 49, a cashier from Moyock, N. C., visited Wal Mart in Chesapeake last week in search of sales. She lives with her husband and two grown sons and is the only one with a job. Their dinners consist of Oodles of Noodles, hot dogs and bologna. As soon as she gets her paycheck on Fridays, it's gone. Our economy is so bad that most of us don't even realize that we/you are about two paychecks from being homeless. Think about it.
It is doubtful, says Shrum, chairman of the marketing department at the University of Texas at San Antonio, that the penchant for saving will outlast the downturn. People are famous for saying, “this time, it's different”, but Shrum's personal opinion is that it isn't all that different at all. “People were not all that frugal after the Great Depression.”
For more information: Philip Walzer, (757) 222-3864, phil.walzer@pilotonline.com
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