On being frugal

Keynes wrote about the Paradox of Thrift. That is, when times are tough, it may be a good idea for individual families to rein in spending and save up their money. That provides security, but it’s bad for the whole economy, because it stops growth dead. And, since our lives are so interrelated, eventually what’s bad for everyone becomes bad for you, no matter how virtuous you are being.

That’s why Keynes suggested that in times of low employment it was up to the Government to spend, to make up for demand. Fine and good. At the time Keynes wrote, though, the average person did not have access to credit cards. It was a question of spending your disposable income or saving it. Now you have a third choice: spending money you haven’t earned yet.

Here’s a blog post that came out one year ago, telling exactly the story I told above. Personal savings rates were way up but the Government was going way, way into debt.

This morning, I did a search in Google News for U.S. Savings Rate. Then I took a screenshot of the first stories that came up. I’ll just ask you: is this really a good sign or more of the same that got the world into its most recent catastrophe?

consumer debt story