SPENDING AND SAVING

 

In a perhaps tortured posting, “Is That a Bubbling Noise?,”[1] this blogger attempted to present an overall view of economic motivations as they relate to downward trends in a national economy.  Brave readers can look up that effort (use the URL in the citation) and work their way through that text.  This current posting will simplify things by making a related point.

          That earlier effort relied on the work of Richard Posner[2] as does this one.  Here, he, in turn, relies on John Maynard Keynes.  Citing that economist’s book, The General Theory, Posner points out that there are two economic options people have when they act economically.  They can consume or they can save.  For most such actions, that means people spend or save their money.

          Further, Keynes identifies motivations or concerns for each option.  In terms of consuming, a person might seek enjoyment, generosity, shortsightedness, ostentation, extravagance, and/or they might simply miscalculate.  As for saving, there is a desire or concern for precaution, calculation, independence, foresight, improvement, enterprise, independence, and/or pride or avarice.  Surely, readers have at one time, or another, felt each of these motivations or inclinations.  

They can reflect or recall how they behaved at such times.  If money was involved, did they consume or did they save?  Ideally, when should one consume (which this blogger will call spend or spending) and when should one save?  Perhaps if one generalizes and thinks aggregately, the question becomes:  when should people spend and when should they save?  Well, Posner states, for the good of the economy, they should save in times of prosperity – the good times – and spend during times of recession – the bad times. 

Spending during times of recession helps by increasing economic activity.  Saving during times of prosperity helps put at bay inflationary forces.  But that’s not how they behave.  By placing oneself in one or the other condition, minimal reflection tells one why counter behaviors prevail. 

During good times, people are apt to have secure employment, enjoy higher levels of confidence, and more apt to see little risk in indulging or satisfying material or experiential desires.  Of course, the opposite exists during the bad times when confidence is likely to be challenged and risks are augmented, at least psychologically if not in reality.

While the actual economics of these trends and their cyclical character can be quite complex for civics students in secondary schools, this broad explanation of spending and saving can be readily understood so that they can at least appreciate the counterintuitive nature of these factors. 

And included in those factors is that their individual behavior will not tip the national scale one way or another; they are just one among hundreds of millions of people.  This is important because students need to consider how people, not individuals, decide these questions and decide what their behaviors will be.

It also introduces the need for governmental interference with how the economy will behave.  How?  By governments providing counter incentives – e.g., by manipulating interest rates so that people spend less in inflationary times and spend more in recessionary times.  But in doing so, government policy defies pure laissez faire economics or small government politics.  Posner, who in the past was considered a conservative (small government advocate), questions maintaining limited government responses to economic challenges. 

He writes, for example, in response to such economic nightmares as the 2008 recession (which he calls a depression) the following:

 

And it was a failure of government and of the economics profession rather than of business, as business foresight is rationally truncated …

            In sum, rational maximization by businessmen and consumers, all pursuing their self-interest more or less intelligently within a framework of property and contract rights, can set the stage for an economic catastrophe.  There is no need to bring cognitive quirks, emotional forces, or character flaws into the causal analysis.  This is important both in simplifying analysis and in avoiding a search, likely to be futile, for means by which government can alter the mentality or character of businessmen and consumers.[3]

 

And these realities further spelled the doom of how Americans viewed governance and politics.  Up until the Great Depression of the 1930s, the parochial/traditional federalist view dominated in how Americans understood those concerns.  In the minds of most Americans, America was a rural, agricultural society.

Then, after the depression, came World War II with huge central government expenditures which brought an end to the depression and undermined how Americans had understood their government and the politics it practiced.   More specifically, that war brought to an end the unrealistic notion that America was a society of small, local communities. 

It became obvious that any such view was doomed.  Parochial/traditional construct over-relied on local governance to meet the governmental and the economic needs of the population and almost overnight it was considered old- fashioned and inadequate.  Its basic tenets were developed during the colonial period and held up relatively strongly regarding the nation’s economic realities until the Great Depression. 

Yes, that was true to lesser degrees as the years progressed, and the economy became more and more national and then global.  Surely, the events of the Great Depression and even of World War II made that obvious.  In its end, it became not only dysfunctional but dangerous vis-à-vis the nation’s ability to survive or maintain its health. 

Today, that view is totally inadequate and what took its place, the natural rights view, falls short as the Posner quote indicates.  The natural rights approach lends itself to laissez faire thinking, limiting the role of government to basically police powers.  Posner, by just looking at the basic behaviors of spending and saving, demonstrates how inadequate natural rights thinking is.  While that view has not prevented an active governmental role in the economy, it has undermined that role’s legitimacy.

So, that leaves the American people with a challenge.  How can they retain (in some cases reestablish) the cooperative, collaborative, and communal qualities of federalism, but adopt a view that realistically accommodates the economic world that exists today?  This blog’s proposal is for the nation to adopt what it calls liberated federalism.  The blog’s purpose has, to date, been to offer an overall rationale that supports that construct.  And that will continue to be its aim.

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[1] Robert Gutierrez, “Is that a Bubbling Noise?,” a posting, Gravitas:  A Voice for Civics, a blog, September 24, 2019, accessed January 6, 2024, URL: https://gravitascivics.blogspot.com/2019_09_22_archive.html.

[2] Richard A. Posner, A Failure of Capitalism: The Crisis of '08 and the Descent into Depression (Cambridge, MA:  Harvard University Press, 2009).

[3] Ibid., 111-112.