Chris Isidore’s article says we are killing the economy by saving more and paying off debt. He is correct by saying demand for products is going down since we are spending less. In the short-run, this will hurt our economy as companies adjust production downward (layoffs).
The good news is this may be temporary (at least some of it). An example would be a person with $1,000 of credit card debt. Lets say that person decides to pay off their debt over 5 months, that’s $200 per month. So now, instead of spending the money, it goes to debt. That means for 5 months, demand for various products will decrease by $1,0000. After that time period (I am leaving savings out for now) this person could go back to spending $200 per month.
The end result is a temporary reduction of demand. The spending levels returned to normal after the debt was repaid. At a macro level, companies would adjust by laying off people when the demand drops. They would rehire when the demand returns.
Another variable to this are the kinds of products we purchase as a nation. Savings is also an issue. Both savings and products we purchase are long-term spending changes. We may decide to start saving more money each month or that we don’t need as many luxury goods. Hopefully, we will repay our debt and start spending on goods soon.