Sometimes it is the juxtaposition of articles that gives them meaning. A couple of days ago I recall a meme that flashed through my Facebook feed. (I tried to find it again to link to it here, but after a bit of clicking I gave up.) The idea was that when a person has 50 cats, or has a house full of newspapers, we call him a hoarder. When a rich person has billions more than he can spend, we call him a genius.
I spent this morning with a quick read of the news, first glancing through an article on the World Press site focusing on tax avoidance. The article opened:
When Donald Trump was recently asked what his tax rate is, he irately responded, “It’s none of your business.” And Trump has repeatedly stated that “I fight very hard to pay as little tax as possible.”
One of the big questions in the presidential campaign at the moment has to do with Donald Trump’s tax returns. There has been rampant speculation as to why he is not willing to share them with the public. One of the main reasons, the pundits guess, may be that it will show that he is not nearly as rich as he pretends to be.
While still thinking about this admiration of wealth, which at its most basic level is just holding on to big piles of money, I read an article on the Independent Voter Network on how Americans are becoming savers and how this is bad for the economy.
“Under all circumstances, personal consumption is always the primary driver of the economy,” the article says. “So how do you convince a nation to start spending again?”
It struck me that the “Americans” here who are being asked to start spending are folks like you and me, not folks like Donald Trump. When I put money into a savings account instead of buying a new TV, it is taking that money out of the economy. When a zillionaire parks millions off shore there seems to be little discussion about how to instill confidence in that person that it is OK to spend that cash on cool stuff like higher salaries or whatever rich people could be buying with all their savings. We don’t usually use a word like “savings” to describe the big piles of money rich people keep in their Swiss bank accounts. Savings are what people of modest means put aside. Rich people have profits.
The question “how do you convince a nation to start spending again?” does not bring to mind the uber-wealthy who are hoarding most of the cash. See for example this CNBC article: Rich hoard cash as their wealth reaches record high. It seems it is not “a nation” that needs convincing, it is the small percentage of the nation that is holding most the cash who need convincing.
An interesting element in the IVN article is that wile it worries about the effect of (presumably middle class) savings on the overall economy, it is also critical about the level of debt average Americans carry.
Americans are carrying fairly large credit card balances. As some commentators note, Americans are probably willing to put up with a government drowning in red ink because they see the same pattern in their own finances. We live in a ‘pay for it tomorrow’ society — from Washington D.C. to Main Street, nobody wants to pay the piper.
What does it mean that an article is on the one hand concerned that we might be saving too much and also concerned that we are spending more than we have?
This is a horrendous double-edged sword. Paying down the debt, from the personal perspective has the net effect of saving, yet paying the debt down also destroys wealth in the system (the debt is held as an interest bearing asset by a bank).
Even worse, the consumption from this debt took place long ago; the debt service is no longer driving the economy (and yes, the interest paid is still a part of the current GDP, but consumption drives the economy — not borrowing).
In other words, when you pay down your debt, that is less money that the banking system has, and if you then put the money you saved by not paying interest to a bank every month into a cookie jar, that is money that, say, a car dealer or Wal Mart is not making from you.
This is all true, but when we conceptualize the middle class and poor as having savings and the rich as having profits, doesn’t it change the meaning of a question like “how do we convince people to spend” into something else? If we ignore the people with the most to spend in this, are we not essentially asking “how do we persuade the people who have less to keep less of it for themselves?”