What is Good for You is Bad for Our Economy

From the AP:

WASHINGTON — Americans are hunkering down and saving more. For a recession-battered economy, it couldn’t be happening at a worse time.

Economists call it the “paradox of thrift.” What’s good for individuals – spending less, saving more – is bad for the economy when everyone does it.

On Friday, the government reported Americans’ savings rate, rose to 2.9 percent in the last three months of 2008. That’s up sharply from 1.2 percent in the third quarter and less than 1 percent a year ago.

It is good that Americans are saving more. Unfortunately, as we learn from above, it’s at the expense of the overall economy. When people save, it decreases the demand for products. When the demand for products goes down, companies adjust by producing less (this usually leads to layoffs). It will be a painful road for many this year but eventually President Obama and his economic team will help guide our economy back to normal levels.

What kind of economy do Americans want for the long term? It is back to our old way of spending with little savings (and lots of debt)? Or will this teach us a lesson about the importance of saving and not spending as much on “useless toys”. A colleague in the Political Science department believes Americans will go back to their normal spending ways after this crisis ends. He says history has shown that is the case with us. What do you think?

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11 Responses to “What is Good for You is Bad for Our Economy”


  1. 1 WillDiJohn February 1, 2009 at 2:12 PM

    The credit industry likes to throw around 5-7 years to recover from bankruptcy. And people who are still underwater will probably take just as long to correct their situations. Consequently those who are out of the credit market will not be returning, even if they want to, for a long time.
    But in the meantime, where we save our money and rebuild our assets is very important. Where we save now will shape our future economy. We want to avoid inflation or excess currency. We don’t want to see banks or insurance companies loaning out our saving funds at easy terms or low rates, because we will get caught up in the same overdebted trap again. We don’t want to cause stock market overbuying, diluting our profits. We don’t want to inflate the cost of our housing, winding-up the real estate spiral again.
    We do want to save. We do want to know that our savings will be indestructible. So where, you ask, can I safely stash some money and not have negative economic impacts? I’ll tell you, but you won’t believe that it will also make you a great profit. My recommendation is to save your money in gold. There is so little gold and so many of us. If each of us bought just one ounce of gold a year, the price would skyrocket beyond the ability of the middle-class to acquire it, in only a few years. And the really interesting result is that none of the items we buy for quality of life would increase in price. Gold’s price has no effect on housing, clothes, food, education, or even your vacation.
    Governments and corporations are constantly massaging our economy. We everyday citizens must also take responsible action in our society. Saving our own gold nest will be good for everyone.

  2. 2 ace1989 February 3, 2009 at 8:30 AM

    i think if the media would stop trying to scare our citizen with “the worst resection since the great depression” we would spend more and save less which would pull our economy back up. because it is no where near as bad as the great depression, once you factor in the change in population and other factors. ill admit we are in a bad resection. so i blame the media for it getting worse.

  3. 3 Michael Huddleston February 3, 2009 at 5:11 PM

    Where do we draw the line of a balancing our check books and supporting our economy? Personally, I make as much as I spend in order to be able to afford going to school. So when I think of saving my money it is bills first, sustinance second, leisure last. I have a feeling more and more people will be living pay-check to pay-check with all the job cuts. I would think leisurely goods would have less of a demand and the staples would have a higher demand. Would this trend still be helpful to the economy or more crippling?

  4. 4 phanh February 3, 2009 at 6:54 PM

    I think everyone is just worry now that’s why everyone is saving and because of where the economy is going. we do want to help our economy but our family is what we are worry about first and what if the economy dont change and we will have more problems that we will have to deal with and that’s not want we want to have to worry about later on so we have to start saving now because if we dont then our problems will start to build up and we will have to deal with even more stuff that we shouldnt have to.

  5. 5 Charles Jesch February 3, 2009 at 7:30 PM

    The need to save money, especially in times like today, is dire. People are unaware what tomorrow will bring so saving any extra cash makes sense. However, if by keeping their money, the economy continues to fail, there is little point in doing so. Saving in times like today is our knee-jerk reaction, but in order to alieviate these problems we must avoid our first instinct to some extent and buy things. By standing by and keeping any extra cash to ourselves we are not only hurting our neighbors but ourselves. There will be nothing left if we fail to buy. The majority, and by majority I mean 99%, of jobs in the country rely on others to buy their goods and services. We need to go out and spend money like never before. Thst is to say, go spend money if you have any extra after buying the bare essentials.

  6. 6 janeth figueroa February 4, 2009 at 6:09 PM

    Reading articles like this one interest me. The economy goes in a circle and I cant imagine how hard it’s going to be to get us out of it. Just like Charles said, we NEED to spend money in order to get our economy good. I heard the government is going to be giving another stimulus check, but since Vallejo and California are broke we might not see those checks until a year or so. So how can we spend money when most of us don’t have any to spend? I have faith Pres. Obama can get us out, but like he said, it’s going to get worse before it gets better.

  7. 7 Rachel Sturm February 5, 2009 at 8:33 AM

    While I have hope for our Economy, I know that it will take years to come out of this recession. Even if Pres. Obama manages to secure consumer confidence once again, people will go back to spending above their means, leading us right back to where we came from. What I thik the government really needs to do is require everyone to take a class about how to spend money wisely and within their own means! Seriously, how can the American people be so stupid as to spend more then they make?! Its common sense, which seems to be running incredibly short in the past few years. We basiclly need to get off our high horses and realize that we cant all have huge SUV’s and buy two houses, we need to spend only what we can make!!

  8. 8 Houck24 March 15, 2009 at 4:39 PM

    I think that Americans will go back to there ways unfortunately. Hopefully they dont and that they learn from this but unfortunately I dont think that will be the case. I guess the only good thing is that when Americans spend more instead of save, it betters the overall economy. Right now people are just trying to keep there house or keep food on there tables. Yet when things get better and the money is there, people wont have saved a dime.

  9. 9 Gilberto Vazquez March 18, 2009 at 11:53 PM

    i Guess people are gonna stop having to save their money start spending it so the economy can get rolling once again. it must be hard for people to do that but im sure it will pay dividends once things get brighter and not as gloomy.

  10. 10 T May 25, 2009 at 7:25 PM

    If people would save some money for hard times they wouldn’t have to save it when times are hard. The buying power of the dollar is higher when the economy is down it is just harder to find jobs and make money. If people did this they would be able to jumpstart the economy. The only problem is this will never happen its like communism being successful it will never happen.


  1. 1 Credit Crunch » What is Good for You is Bad for Our Economy Trackback on February 1, 2009 at 1:32 PM

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