Will stimulus spur spending, quash saving?
When the economy started to tank sometime last year, I wrote that it might not be such a bad thing. Taming our culture of conspicuous consumerism and encouraging folks to save some part of their earnings every month seemed likely to stabilize personal if not national finances.
Now, it seems, my old-fashioned notion of saving for the future is contributing to the problem, not solving it.
The government recently announced that the American savings rate as a percentage of after-tax income has risen to 2.9 percent in the last quarter of 2008. That’s up from a paltry 1.2 percent in the third quarter of last year and 1 percent a year ago. During most of the past decade it was probably in negative numbers.
But before I could cheer our collective thrift, I realized that as saving goes up, spending goes down, causing lay-offs in manufacturing and retail, which, in turn, deepens the recession, increasing job insecurity, hence saving . . . ad infinitum.
According to government statisticians, paying down debt (think credit cards) equates to savings in assessing the nation’s economic health. Under this method of accounting, savings could rise to 6 percent or more in the coming years, economists say.
Here I was encouraging my grandchildren to save their coins toward future purchases, warning my kids not to buy luxuries except with cash and to pay off credit card debt. What was I thinking?
The economy shrank to a whopping 3.8 percent annual rate during the past quarter, the worst in 26 years, economists say, and consumer spending fell for two straight quarters, the steepest decline since the 1990-91 recession. I don’t know what I was doing at that time, but I can’t remember anything approaching the angst over this meltdown.
Anyway, in the midst of all this trouble, there are up-ticks in businesses related to the job market and a certain ethos of saving and repairing rather than chucking the worn and buying new.
Among workers doing better than average are auto mechanics, résumé writers, employment lawyers and cobblers, those gifted menders of worn shoes. Some small shoe-repair shops say their business is booming and there aren’t enough trained cobblers to help resole and restitch their customers’ designer shoes.
Many cobblers had closed up their shops over the last few years as cheap imports became available from Target and Walmart. Sneakers with molded soles can’t easily be repaired, and besides, the tops often wear out first.
Unlike most children of today, I grew up with a real appreciation for cobblers. My feet stopped growing when I was about 12 and after that, I was expected to keep my shoes repaired and polished. It was a regular item on the list I was forced to keep showing how my weekly allowance was spent.
When my children were teens, they had custom-made riding boots that cost more than $150 a pop, took several months to order and were essential to their success in competition. We were on a first-name basis with our local cobbler, who also repaired saddles, bridles and leather halters. It’s comforting to think that their jobs and businesses are prospering.
These days, I usually buy one purse at a time and keep using it until the lining rips or the handle falls off, which sometimes happen simultaneously. My daughter will say, “Mom, you need a new purse.”
Well, she said that again last week because my current model has a dodgy zipper. Sometimes it closes properly and sometimes the teeth refuse to mesh and it gapes open, threatening to spill its contents in the snow. The lining isn’t worn yet but perhaps I’ll just take it to the cobbler now, knowing I’ll have to wait a few weeks.
Meanwhile, global leaders meeting at the Davos World Economic Forum in Switzerland warned Saturday that if nations try to protect their economies by building trade barriers, they risk making the global economic crisis worse. In a televised forum, some of the world’s smartest business leaders warned against the sort of trade protectionism that devastated the world economy during the Great Depression.
Here at home, President Obama is confronting a similar problem with his massive stimulus package, which some say contains protectionist measures such as the “Buy American” provision requiring major public works projects to favor U.S. steel, iron and manufactured products over imports. Canada’s International Trade Minister strongly opposes “Buy American” and has said he hopes Canada will be exempt from those provisions.
So if the stimulus plan passes, at least the parts that might create jobs and spur some spending, where will that leave personal savings? Will we go back to saving nothing and living high on the credit card? I hope not.
Maybe all the smart business leaders and economists will come up with a way to value thrift while encouraging reasonable spending that is sustainable. And if they do, will we be smart enough to listen?