Is frugality unAmerican?

One narrative subplot in the ever-escalating media buzz over the economy is that the new fad for frugality, for paying off debts, and for living within one’s means is bad for America and bad for the global economy. When people stop buying, the story goes, retailers stop selling, lenders stop lending, importers stop importing, and manufacturers stop manufacturing. All the worthies in these sectors then close stores, go belly-up, and lay off employees, who are forced to behave frugally, pay off their debts, and live within their means, causing more retailers to stop retailing, more lenders to stop lending, more importers…and so on to infinity.

So it is that seedy characters like you and me, eccentrics who subscribe to the wacky theory that we should spend no more than we earn, refrain from buying every piece of junk set under our noses, and maybe even put some of what we earn into savings, are responsible for bringing this country to the brink of depression.

Yes. That’s you and me, fellow PF blogger: our little terrorist coterie has darn near brought about THE FALL OF THE AMERICAN EMPIRE! Worse! THE COLLAPSE OF THE ENTIRE PLANET’S ECONOMY!

Think of that.

Well, I am thinking of that. And I think not.

The way I see this, we’ve arrived in our present predicament not because consumers stopped spending but because they spent so much, so profligately, and so stupidly. Consider: If over the past two decades 80 percent (say) of Americans had been living within their means—if they had been educated adequately on personal finance matters and understood the basics of lending, saving, budgeting, and investing—we would not be in the mess we’re in.

  • Most Americans, having navigated clear of the shoals of unmanageable debt, would have plenty of money to spend on the things they need and—yes!—want.
  • Few people would have been naïve enough to get themselves into booby-trapped mortgages for absurd amounts of money that King Croesus himself couldn’t afford.
  • Most people would have had a fair idea of what a house is really worth. Because the public in general would have resisted buying at absurdly inflated prices, real estate prices would never have blown out of control, and so no housing crisis would have occurred.
  • Retailers would still be selling products at a steady pace.
  • Manufacturers would still be making products at a steady pace.
  • Layoffs would not be occurring.
  • The President of the United States would never have thought of responding to the horror of 9-11 by telling Americans to go out and spend themselves silly. (Who knows? Maybe his speechwriters would have been forced to come up with something more worthy of a world leader, like “We have nothing to fear but fear itself.”)

Nope. We ants are not responsible for the collapse of the economy, nor are we the ones who are digging its grave. The grasshoppers did it. The grasshoppers and all the greedy little critters who got rich off them.

The newfound penchant for frugality that the newspapers and broadcasters tell us is now the hot fashion will no doubt pass. But if it doesn’t, that won’t be a bad thing. We will have hard times—we’re going to have hard times whether we all go out and load up our credit cards or not. But if members of the American public learn to get a grip on their spending and figure out how to manage their money so they can have what they want without getting themselves over their heads in debt (or if, more amazing still, they figure out what’s really important in life), in the long run the economy will be healthier and stronger. And the world will be a better place.

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Mary@SimplyForties November 18, 2008 at 7:43 am

Exactly! Excellent article. We’ve certainly come a long way from our Puritain beginnings.

RoomFarm November 18, 2008 at 9:31 am

Yes! I’m with you. Great article. Yup — all you consumers should go into debt and save the US economy….as if. Thanks for the great post.

frugalscholar November 18, 2008 at 1:42 pm

Great, as always. It seems a lot of the blame for a continued downturn is placed on people’s cutting back on spending. As a long-time frugal person, I am proud to say that I am NOT cutting back; my spending is about the same.

My treats for the coming year will consist of the following: for husband, a new $$$ bicycle; for me, a tooth implant (ugh); for children (maybe) 5 week sessions at a French immersion program in Nova Scotia. All told about $11,000 or so. That should give the economy a shot in the arm!

!wanda November 18, 2008 at 5:08 pm

The economy’s problem isn’t that people aren’t spending. It’s that they were spending like crazy before and aren’t spending now. Before, people were buying consumer goods like crazy on cheap credit, and so factories were built and salespeople and office cleaners were employed. But current demand is much lower, so some of those factories and employees are superfluous. People are being laid off, are afraid of being laid off, or are being paid less, lowering demand for consumer goods and continuing the spiral. You’re right that if all along the consumer demand had been lower and the “right” number of factories were built and employees hired, we wouldn’t be in a downward spiral now. The economy would never have reached its previous highs, but most people prefer predictability over volatility, especially when the lows are really threatening.

Incidentally, I don’t understand how there is enough money in the world to employ everyone at a sustainable wage. More people == more supply of potential employees == lower wages.

copyeditorsdesk November 18, 2008 at 5:28 pm

Exactly! A less yeasty economy but one based on the realities of consumer’s income and credible buying power would not have overheated. We wouldn’t have gone through a seeming “boom” period, but on the other hand, we wouldn’t be facing a collapse now, either.

Governments mint money. That’s where money comes from, now that currencies in developed countries are disconnected from gold or silver. In theory, the more people, the more money printed to sustain them. Right? At least until governments run out of paper and ink….
;-)

Saver Queen November 19, 2008 at 6:32 pm

I completely agree. Since when does spending money you don’t have contribute to a healthy economy? The bubble’s gotta burst sometime. It’s just one more myth we’re fed, right along with “you need to buy this to be happy” to make sure we all keep coughing up our money and dishing out high interest rates.

Aya @ Thrive November 20, 2008 at 11:12 am

I agree with you too, people were spending too much before and now, it’s balancing out to how spending should be like. I also wonder if everything is factored in when they calculate how bad the economy is because no one is shopping. I don’t feel bad for the giant companies like Circuit City going bankrupt as much I do for the small local stores that are suffering; those stores always have rare items that can’t be found elsewhere and when they’re gone…they’re gone forever! In any case, its ridiculous to feel bad about not spending money when everyone ends up in a bad place when we do spend.

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