Save, Don't Spend, During The Holidays

Declan McCullagh Questions The Wisdom Of Politicians Urging Visits To The Mall

(CNET)  This story was written by CNET's Declan McCullagh.

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Happy holidays. Now don't go out and buy some presents at the mall.

This is, of course, exactly the opposite of what Washington officialdom wants you to do. I don't know exactly how this line of spendthrift thinking started, but my hunch is that its recent antecedents came from President Bush's post-9/11 line that Americans should "take their kids on vacations" and "ought to go to ball games." Bush's more recent suggestion was "I encourage you all to go shopping more."

This is a bipartisan sentiment. Last month, House Speaker Nancy Pelosi sent out a press release lamenting the fact that consumer spending declined by a dramatic -- wait for it -- 1 percent.

The reality is that Americans have been on an unprecedented and unsustainable consumption binge for at least a decade. They paid bills with borrowed money. Savings was out, while leased BMWs, large-screen TVs charged to credit cards, and zero-down option ARMs were in.

Now, as the economy is trying to heal itself and return to normal, consumer spending has dropped off. This should be no surprise: When unemployment is rising, people save more because they're worried about losing their jobs. This is prudent and sensible; what's irresponsible is politicians urging visits to the mall when saving may be the wiser option.

A catalyst is that many consumers have pushed their credit cards to the limit and extracted as much as possible from their homes during the real estate bubble. Now that credit card issuers are becoming more restrictive, and the home equity loan spigot is being turned off, more debt is no longer as attractive (or as possible) an option.

Another reason that spending slackens is that some prices are falling. Why buy a house now when you might be able to save tens of thousands of dollars by waiting? Does anyone really think that, given the bad news for the auto industry including Toyota, car prices will be significantly more expensive in 2009?

A broader defense of savings is worth making, especially when thrift is forgotten. The late Henry Hazlitt, once an economics writer for the New York Times, said in 1946 that: "When money is invested (including by depositing it in a bank, which allows the bank to invest) it is used to buy or build capital goods -- houses or office buildings or ships or trucks or machines. Any one of these projects puts as much money into circulation and gives as much employment as the same amount of money spent directly on consumption. 'Saving,' in short, in the modern world, is only another form of spending."

So the next time someone tells you that if everyone becomes more thrifty, everyone becomes poorer, don't believe them.

Unfortunately, Washington has set an awful example. Politicians have borrowed over $1 trillion in the year ending in September, not counting the whopping costs of the Wall Street bailout. The Treasury's two largest creditors are China and Japan; our federal budget now depends on their continued generosity. (If our creditors demand more stringent terms in the future, watch out.)

But that's not all. What politicians have done, through years of government policies that enjoy bipartisan support, is to make it painful to save. When you save, you're first taxed on interest, capital gains or dividends, and a second time when you eventually pay sales tax on future purchases. Spending is taxed once.

Inflation tends to be another tax on savers, and an especially regressive one. One handy inflation calculator estimates that something that cost you $1 in 1928 would cost you $12.42 today. A 1932 newspaper archived by Google News shows that a pair of "smart" ladies' shoes was $1.95. Around the same time, 16 ounces of peanut butter was 21 cents, and bacon was 18 cents a pound.

The Federal Reserve's artificially low interest rates -- savings accounts are offering a mere 2 percent or so average return -- aren't helping. Not only does that mean an annual return of closer to 1 percent after federal and state income taxes, it's also hammered the U.S. dollar in the last few weeks, making imported goods more expensive.

Anyway, back to the holidays. If you have some last-minute holiday shopping planned, don't put it off any longer. Cancel it. Web sites like NoChristmasGiftsThisYear.com offer some useful no-spending-required ideas. Rather than spending money on loved ones, spend time with them instead.

Americans are planning to cut their Christmas spending by 50 percent this year, from $859 last year to $431 this year, according to American Research group, a market research firm. That indicates that, after many years of borrowing, people are starting to live within their means. It also shows they have more common sense than their elected representatives in Washington.

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Declan McCullagh is the chief political correspondent for CNET. He previously was Wired's Washington bureau chief and a reporter for Time.com and Time magazine in Washington, D.C. He has taught journalism, public policy, and First Amendment law. He is an occasional programmer, avid analog and digital photographer, and lives in the San Francisco Bay area. His e-mail address is [e-mail]

Note: Declan McCullagh will be on vacation the week of December 29th. This column will resume the week of January 5.

[whitemale08]

Karl Marx was an avowed worshiper of Adam Smith (and the free invisible hand) and yet Wall Street touts this clown every single day.

Once you combine adoration of this British agent named Adam Smith and British agent Maynard Keynes you get what we have today...

A COMPLETE BLOWOUT OF THE AMERICAN CONSUMER/ECONOMY!!!

[slinginrich]

I am through with credit....it is cash on the barrel head from now on, if I don''t have the cash I don''t need the item!


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Posted by ricklf1 at 06:17 PM : Dec 26, 2008
+ report abuse

Words to live by......

[ricklf1]

My Christmas present was my car title of my 05. Paying off a note is always the best way of saving!

Posted by sserp37 at 11:10 PM : Dec 25, 2008

I agree with this person. My Christmas present to myself this year, was to pay off my credit card debt, cut the card up, and mail it back to Chase Bank! I am through with credit....it is cash on the barrel head from now on, if I don''t have the cash I don''t need the item!

[cheetah-man7]

Isn''t it amazing how those who are encouraging us to spend are the same ones who realistically can''t get "laid off" from their jobs? How about those who advise us to have between 6-12 months worth of salary saved up "just in case"? What planet do these folks live on? The vast majority of my friends and colleagues do NOT have this kind of money put aside. The average JOE is living from one paycheque to another. I spent less for Christmas presents this year and next year I will spend even less as I think home-made gifts will be appreciated even more. 2009 is going to be a tough year for us all. CNN called 2009''s situation as "Dire". Something tells me that dire is an understatement. Oh yeah, my cable bill just arrived - now $3 more a month for basic service. What''s up with THAT? No wonder why nobody has savings.....

[quickly101]

Recessions, depressions, come and go but the giant in the closet never really disappears. GREED! This giant JERK causes these downturns in the economy paeriodically. If someone ever figures out how to harness that basic human weakness, maybe the recessions would not appear quite so often.

[chad55555]

It''s your money if you need it spend it.The government has experts(so called) that think they have the answer for everything,the truth is their the ones that put us in this mess and have no idea what to do.(too much education not enough real world learning)making mistakes at the tax payer cost. SAVE SPEND IT DOES NOT REALLY MATTER,WE ARE HEADED FOR THE WORST DEPRESSION THE WORLD HAS EVER SEEN BECAUSE THE EXPERTS HAVE NOT PROTECTED THE PEOPLE.EVER NOTICE HOW IRS IN ON THE LITTLE PERSON ABOUT TAX BUT THE CEO"S CAN BLOW BILLIONS(destroy millions of people) AND THEY GET TO KEEP THEIR BIG HOMES AND CARS AND MONEY IN THE SWISS BANKS. SURE THE BANKS WANT YOU TO SAVE,MORE MONEY FOR THE CEO"S.WHEN IT GOES UNDER THERE WILL NOT BE ENOUGH MONEY IN THE FDIC TO PAY EVERYONE AND THEY KNOW IT.

[sserp37]

My Christmas present was my car title of my 05. Paying off a note is always the best way of saving!

[troutfisher4]

A nice counterpoint to Ben Steins previous idiotic article asking everyone to spend spend spend.

[hypnotoad72]

"over a decade"? I thought the era of greed started in the 1980s, rather more than one mere decade ago (nearly three decades)

[hypnotoad72]

If consumers save, the economy goes down.

Consumers have spent and everyone else says they have spent too much and that''s why the economy goes down.

The article also forgets other Liberal viewpoints such as peoples'' wages no matching inflation and the cost of living, a practice that has been going on some 40 years, apparently. (A partial truth in some ways, probably, but nothing is so wonderfully one-sided.)

[mollydtt]

I admit that a dollar isn''t worth much, but it REALLY isn''t worth much if you have to pay interest on it.
What ever happened to rational thinking. You don''t spend money that you don''t have. period.

We have been brainwashed into thinking we have to have a luxury house, latest electronic gadgets, exotic vacations. Old ideas die hard.
I''d rather know that I can afford to take my dog to the vet, pay for my daughter''s violin lessons, and keep a roof over my head (pay those pesky huge property taxes).

Taking on new debt (with interest) is just suicide.
I don''t care *who* is telling me to spend, spend, spend.

[brianbwb-2009]

"The Federal Reserve''s artificially low interest rates..."

The "Federal interest rate" concept is in and of itself artificial, that a privately owned consortium of banks are allowed to print a nation''s currency, with interest attached to it before it leaves the press, is a device to further enslave people under it''s control, the promissory notes created by such an organization are by definition worth less than the stated value because of automatically attached interest.

[nownthen-2009]

Why do you people keep voting for the mostly same crooks(I never voted for an incumbent) to send to congress and hope/expect different results. As long as you keep sending them back they are going to keep on ****ing us.Wake up people
Vote for no incumbents!

[nownthen-2009]

Why do you people keep voting for the mostly same crooks(I never voted for an incumbent) to send to congress and hope/expect different results. As long as you keep sending them back they are going to keep on ****ing us.Wake up people
Vote for no incumbents!

[thebillisdue]

We have been on an unsustainable buying binge for years. We have to find an point of equilibrium. Until we get there the economy will become weaker. The Fed''s policies made saving a loser, both to taxes and to inflation. To try to prevent a very deep recession/depression both the Fed and Congress are going to go into extreme debt. I suspect that will result in either extreme inflation or potentially a real crash in the economy.

[catlady1412]

There are two op-eds pushing the exact opposite position of either saving or spending. The thing is, do neither in extreme. If we do not go out to eat at our local restaurants, they could close. If you need to buy something, go buy it. The guy selling the shoes or the appliances would appreciate keeping his job. You aren''t waging a decent protest if you stop eating out or buying stuff at Target. The jerks in Congress don''t care about that, they have no stock there. But your neighbors work there or your teenage kids want to get their first job there and it does not help your property values if all the businesses close in your town and people lose their jobs and homes. It is okay to both save and spend, all in moderation, if you can.

[tincup356]

The last sentence says it all....Washington representative don''t have as much common sense as the people that vote them in...I firmly believe that no one we have in office in Washington right now has the sense,to do what this country needs done , because they are all involved to some extent somewhere in activities that have led to all this mess,,,all co-mismanagers of our country and money,to eve think about letting the same failures fix the problem ...we should have replaced all of them with more efficient people with a little more character and honesty,,,I hope that all this mess sheds true light on what BOTH parties really are.....Extremely organized White collar criminals who are committing treason against the people of this country with these bailouts.

[mcv57]

agree with this article (to an extent). Common sense is not the issue with the U.S. Government, it is CORRUPTION. We have already witnessed what Wall Street Execs are doing with taxpaper money - stealing it.

This financial deceiptive circus has been going on since the Nixon era. Under military type of interrogation, I bid the SEC chairman will sing a horror show that would make the End of the World sound like saving mercy.

Funny thing, though, saving will only be a temporary solution (until the pennies run-out). The long recovery time will drain savings, and, unless this credit global financial system allows itself to collapse for the sake of the U.S. economy - enemies will emerge (WAR). World starvation will bring war to the door on of the U.S. The Hunns and the Visigoths barbarians sacked and burned ROME with one of the greatess motivators known to man - EMPTY BELLIES!!!

[mcv57]

I agree with this article (on the way to the last line). Common sense is not the issue with the U.S. Government, it is CORRUPTION.

This financial deceiptive circus has been going on since the Nixon era. Under military type of interrigation, I bid the SEC chairman will sing a horror show that would make the End of the World sound like saving mercy.

Funny thing, though, saving will not help unless this credit global financial system allows itself to collapse for the sake of the U.S. economy - enemies will imerge (WAR). World starvation will bring war to the door on of the U.S. The Hunns and the Visigoths barbarians sacked and burned ROME with one of the greatess motivators - HUNGER!!!

[kevsan1]

Quoting a man from the 40s does not reaally apply for this day and age. Then, the dollar was actually worth something. Saving all your money does not do much and those who have were also talked into investing it and look what happened with that idea. The banks are hoarding money right now. They lost a ton in the stock market. That''s what they do with your money before they ever loan a time. They aren''t loaning money. Period. Maybe the writer''s idea would work if everything was fine, but it is not. People are not spending, so more businesses have no cash flow and they then let more people go. Those people hang on to what money they have left and so more money is not spent and more people are let go. Ans so on... The numbers prove it right now.