Friday, March 28, 2008

Debtor Nation

President Bush touted his economic stimulus plan this week:
One of the most decisive actions a government can take is to give people their money back so they can spend it, and that's exactly what we've done. In the second week of May, a lot of folks are going to be getting a sizable check. And I'm looking forward to that day, and I know they are as well.

President Bush and his economic advisers assume that people will rush off to WalMart to load up on more cheap Chinese-made crap they don’t need as soon as the check arrives. Some may, but a recent Roper poll suggests most will not:

About half of Americans don't have spending in mind, with 26 percent saying they'll pay off some debt, and 24 percent planning to save it.

Another 36 percent say they plan to spend the money, but most of those say it will go toward necessities such as groceries or utilities -- money that likely would have been spent anyway.

Just one in 10 (11 percent) say they will spend on discretionary items such as clothing, vacations or restaurants. 

Of course, in a poll like this I suspect people feel pressured to give the virtuous, responsible answer. Once they have check in hand, who’s to say they won’t do the fiscally irresponsible thing?

What I don’t understand is why our entire national economy is based on people spending money. I get the short-term logic, but long-term, shouldn’t we be telling people to save? Isn’t that what leads to long-term stability? And doesn’t constantly lowering the interest rate discourage households from saving?

Since 9/11 I’ve been aware of a “shopping is patriotic” message coming from the powers that be, but when consumers carry this much debt, shopping strikes me as the least patriotic thing one could do.

In the UK, where household savings is at a 50-year low, economists fear this signals a period of slow growth and “belt-tightening,” as British households put more money aside into savings.

This is interesting to me. Apparently the British aren’t comfortable being a nation of debtors like we Americans are. Apparently the British aren’t accustomed to carrying huge credit card debt, mortgage debt, car loans, student loans, etc. etc. Living on the economic edge isn’t a sign of a strong economy across the pond, it signals disaster waiting to happen--as well it should.

Yesterday a friend lamented that a prescription ointment he bought two years ago for $65 is now $130. He couldn’t believe it. Here are some other sobering statistics: Rice prices have jumped 30%, food inflation for household staples like eggs, bread and milk is in the double digits, and of course we all know what’s happened to the price of gasoline. Meanwhile, today brings news of static consumer spending in February. People aren’t buying cheap Chinese-made WalMart crap because they’re spending more money on gasoline, prescriptions and food.

All of this will take some of the wind out of those “economic stimulus rebate checks” that start rolling out in May. Maybe if we’d been saving, instead of living in debt, this all wouldn’t hurt so much. Maybe if we hadn’t been told to go shopping--whether we could afford it or not--and instead been saving, we’d have some cushion for this inflationary period.

Maybe if we didn’t act like a bunch of children, but instead behaved like grown-ups, we’d be capable of weathering these storms.

That requires leadership, though. And I don’t think the guy who lowered taxes while waging a two-front war is the one to do it.