The Thrift Paradox In Action


Most people say they plan to use this year's tax refund to pay bills, deciding in this sour economy to be more frugal with their annual windfall. Fifty-four percent of those receiving refunds said they intend to pay off credit card, utility, housing and other bills, according to an Associated Press-GfK poll released Monday. That compares with 35 percent who said the same thing a year ago.

This is, ironically, bad for the economy in the short run, as it will lead to lower aggregate demand.

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    Suze Orman (none / 0) (#1)
    by Ga6thDem on Mon Apr 13, 2009 at 06:14:38 AM EST
    wrote a column in the Costco magazine that basically says "don't spend money in 2009". She said paying off your debt is of the utmost importance. Increase the amount in your savings account is another thing she said. I frankly don't want to spend any money because my husband could take a pay cut and my work (I'm self employed) could wane.

    The Prisoner's Dilemma, the Tragedy of the Commons (none / 0) (#2)
    by steviez314 on Mon Apr 13, 2009 at 06:40:35 AM EST
    All rational actions on an individual level, that in aggregate do real harm.

    Happily, (none / 0) (#3)
    by reslez on Mon Apr 13, 2009 at 07:42:26 AM EST
    it's good in the long run. Americans have had way too much debt for way too long. Asking people to spend money when their jobs are in danger is callous at best.

    Not really (5.00 / 2) (#4)
    by Big Tent Democrat on Mon Apr 13, 2009 at 08:03:34 AM EST
    Depressions are hard to overcome. And they hurt immensely in the medium and long term.

    We cannot return. (5.00 / 1) (#8)
    by reslez on Mon Apr 13, 2009 at 10:05:21 AM EST
    You cannot build economic prosperity by crushing the American family under a mountain of debt. Turning back the clock to the unsustainable debt levels of 2006 is not an option. If that is what you mean by avoiding a Depression you are simply wrong. Thrift is necessary, good, and unavoidable.

    $3,000 in credit card debt for every man, woman and child in the country is simple insanity. [source]. We must retrench. The more government -- in concert with Wall Street -- fights this reality the more taxpayer money will be wasted trying to recreate the past. We cannot and must not attempt to return.

    The Great Depression resulted from a similar, but smaller, explosion of debt. Does this mean another Depression is inevitable in our own time? Not if we quickly resolve the insolvencies and rid ourselves of bad debt. All the more reason for government to mandate home loan modifications and provide targeted relief to households. This is the lesson of the GD and Japan. Instead we are propping up bankers in order to preserve a failed financial paradigm.


    Less for the individual (none / 0) (#6)
    by waldenpond on Mon Apr 13, 2009 at 09:18:40 AM EST
    More for the ability of American consumerism to lift the rest of the world.  Could create a more secure though slower growing world economy in the long run.  The person who wrote the 'The Age of the Unthinkable' that is making the rounds, is generating conversations that our society is just too complex and we better get used to this.

    I disagree.  We save and don't use debt.  We capitalize the financial industry and we tend to be less reactionary as our purchasing is constant.   It seems reasonable to expect that constant slower growth will have less impact economic and socially.... people don't respond well to having their money and jobs disappear.



    Americans' consumption is the product we sell (none / 0) (#5)
    by scribe on Mon Apr 13, 2009 at 09:15:09 AM EST
    into the world market.

    This fascinating post makes a clear case that the biggest contributions Americans make to the world economy are in two places:  the soldiers we send overseas to effect policies favored by the world's wealthy, and the consumption we perform, which provides markets for the production of China, India and other low-wage industrial societies and profits to the mercantilists who run them and own the factories, often the same wealthy people.

    It's subtle, but nonetheless important.  

    Americans' cutting down on consumption is, paradoxically, the one way we can force the hand of those who hold the control over the world economy.  That's for the short (a year or so) run.

    For the long run, it's cutting up the credit cards.

    Wouldn't this help (none / 0) (#7)
    by CST on Mon Apr 13, 2009 at 09:36:38 AM EST
    the banks?  Or is that only if we pay off our "toxic assets" like mortgages?

    we're just paying the tab (none / 0) (#9)
    by cpinva on Mon Apr 13, 2009 at 02:48:22 PM EST
    for the prior period's demand, that was funded by massive debt. logically, this should free up substantial amounts to then be loaned out again.