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Archive for Wednesday, January 30, 2008

US spending irresponsible

January 30, 2008

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I have a confession to make. I'm not terribly unhappy that the United States economy is in the doldrums, possibly even headed into a depression. I am unhappy that Congress and the president are planning to send millions of dollars as "rebates" to Americans.

The reason I'm not unhappy is that Americans have been spending more money than we have over the past decade. We have been living literally on money borrowed from foreign nations such as China. Our savings rate is depressingly low. The gap between rich and poor is distressingly great and growing each year.

In spite of historically high oil prices we continue to drive massive, gas-guzzling trucks and SUVs and to build our houses with little thought to energy efficiency. We have become addicted to heating our houses so warm in winter that we wear T-shirts in January and we cool them so much in summer that we're forced to wear sweaters in July.

Our parents thought that a 2,000-square-foot house with one and one-half bathrooms was the culmination of the middle-class dream. Today we want twice the space, twice the number of bathrooms, and a spa and media center thrown in for good measure. We are living in an economic fairy tale.

It's easy to blame the present subprime mortgage crisis on the bankers and securities dealers. But, like drug dealers, they were only able to do the damage they did because millions of Americans demanded housing they couldn't afford. Credit became the middle class drug of choice during the past 10 years. And most of us became addicted. Now, we are accustomed to living with high credit card balances and home mortgages we cannot afford.

Our government in Washington, a Republican administration that was supposed to be fiscally conservative, has been spending borrowed money without any regard as to how and when it can be repaid. Now, facing a presidential election this same government is sending millions of Americans checks. Are they telling us to use these so-called "rebates" to pay off our debts? Absolutely not. They are telling us that we must do our patriotic duty and spend that money to get the economy going again. Instead of paying off your debt, they say, buy a new car or stereo. What insanity is this?

In my opinion, if the United States is going to continue to prosper, Americans need to stop spending money irresponsibly, pay off our debt and adjust our economic goals to be rational. And it wouldn't hurt one bit if we stopped buying imported goods and started buying American products.

Why shouldn't the president say that it's patriotic to buy American goods? Why not tell Americans that if they must spend their rebates, spend them on American-made products? As the dollar loses value, foreign goods become more expensive. To switch our buying habits to favor American products is not only patriotic, it's smart.

I don't want to see Americans hurt by a recession, but I fear that unless we, as a nation and as individuals, begin to act in an economically conservative and rational manner, not spending beyond our means, we are in for far greater problems than the recession which now looms over us.

So, my suggestion is a simple one: When you get your "rebate" check in the mail, don't spend it. Pay off debt, if you have debt. If you don't have debt, invest it for the future. That way, you'll have some money put away for the next time things get a bit rough financially.

Mike Hoeflich, a distinguished professor in the Kansas University School of Law, writes a regular column for the Journal-World.

Comments

just_another_bozo_on_this_bus 6 years, 10 months ago

"Why shouldn't the president say that it's patriotic to buy American goods? Why not tell Americans that if they must spend their rebates, spend them on American-made products?"

Not gonna happen because the corporations who really run our government have shipped all of their manufacturing overseas in the global race to the bottom.

SoupBone 6 years, 10 months ago

With all the talk of bailouts and economic stimulus (strictly via spending on consumer goods), the media and politicians have lost track of two important elements of getting through this economic situation:

1) Savings rates are at an all-time low. What can we do to encourage people to SAVE? Are there ways to tweak incentives like the Roth IRA? Are there other things we can do to get US residents to save rather than spend? This is critical...if we don't save 2) Our government HAS been spending...a LOT. Remember that war we are fighting overseas with basically no sacrifice at home? This leads to enormous budget deficits. The Fed is going to run out of bullets to prop up market. They are running the risk of pumping enough liquidity in the market to facilitate the rise of inflation.

Economic fairy tale is right. We may not see a bubble that bursts and causes everybody great pain, but we might very well be in for a decade-long asset deflation.

Daytrader23 6 years, 10 months ago

This whole stimulus package is a load of crap, The problem is Americans have run out of credit and have nothing saved or invested to rely on. Instead of using that money to just give people they should of lowered the capital gains tax which would have encouraged people to save and invest. By giving people cash outright is like giving crack to a crack head. The problem or addiction will still be there tomorrow.
All is not lost though, our economy is more complex than ever and because of the global market and demand this recession should be shallow. We no longer have to stand on our own as we now have a crutch through China, India and others. The global numbers are still very good, sure it will slow down a bit but nothing like recessions in the past.

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