“LET’S SPEND IT, LEND IT, SEND IT ROLLING ALONG…”

12/7/08

In today’s (i.e., Sunday, 12/7/08’s) Chicago Tribune, we find short a letter from the Mr. Jim Poole of Chicago. Mr. Poole opines:

“I am going to spend some cash. Even though gas prices are going down, I am going go find a car that gets 30-plus miles to the gallon and buy it. I am going to take the kids shopping for clothes, and my wife and I are headed out to dinner. Bailout or not, the only way the economy is going to get going again is with all of us spending money. What good are savings that pay you 2 percent interest? We need to refill the machine and spend some cash. If we don’t, I am afraid we will be seeing 20 percent unemployment in the coming months.”

One can have two not necessarily mutually exclusive reactions to Mr. Poole’s observations. The first is that Mr. Poole is, like just about every modern American, is hopelessly addicted to spending money and so simply can’t help himself. Like a drunk who has been white knuckling it for the last few months, he is looking for half-baked theories to justify indulging his habit. Most Americans, like Mr. Poole, are more than willing to do their patriotic duty if doing so involves spending money.

The second is that Mr. Poole is merely behaving rationally, responding to the incentives the government initially put in place in a desperate attempt to avoid a (Horrors!) recession and, having characteristically failed at that quixotic crusade, continues to concoct in an effort to avoid deepening the recession. As Mr. Poole points out, savers are being taken for chumps at today’s low interest rates and have been played for even bigger fools if they’ve put their money in the stock market over the last, oh, ten years or so. So why not spend? The government, by ever loosening money, has made those responsible savers pay for the excesses of the reflexive spenders who got us into this mess in the first place. This is not a political statement; rewarding the irresponsible and punishing the responsible has long been a bi-partisan enthusiasm in Washington, and Mr. Obama shows no inclination to alter the baleful artifice that passes for economic policy in Washington.

Whether Mr. Poole is just an ingenuous exemplar of the hopeless spending addiction that, unless checked, will surely lead to the end of our long run as a world economic power or a rational economic actor responding to the antipodean palliatives emanating from Washington makes no difference. While a bout of spending may help, as Mr. Poole and economic thinkers in both New York and Washington seem to believe, such succor will be horribly short-lived. Unless we break our spending addiction, it’s curtains for the U.S. economy. .

If economic policy makers continue to punish saving and reward saving, the nescient eupeptic effects our economic problems are having on the nation’s savings rate (See my 11/26/08 post.) will rapidly reverse and we will find ourselves plunging even more quickly than most had previously supposed toward permanent economic ruin.

In my 11/21/08 post, I told readers that I had altered my outlook for the markets, but not for the economy, from outright and deeply bearish to a stance that can best be characterized as somewhere between mildly bearish and mildly bullish, which, come to think of it, sounds a lot like neutral. But given that the S&P is up 9.5% since then (after having traded higher), the almost unmitigated bad economic news that has been released since then, and the government’s seeming determination to counter any favorable economic developments with more of the counter-productive bromides that are endemic to public policy, only now in even more brobdingnagian portions, it is becoming harder to take anything but an outright, unabashed bearish stance toward the economy and the markets.