Consumer spending represents 69% of U.S. GDP. That number includes spending on health care and education as well as spending on purses and shoes, and it’s big.
The way to get ahead financially is to live on less money than you earn and get a return that beats inflation. In one sense, it’s very easy. Stop buying lattes, start contributing to your 401(k). In another sense, it’s really hard. Many people don’t earn enough to cover reasonable expenses, and investment returns have been under pressure for well over a decade now.
And then there’s this conundrum: if we all cut back on spending and save a lot of money, won’t it make the economy worse? If we decrease demand for goods, then GDP shrinks. If we increase the supply of savings, then returns fall. That’s pretty much been what’s going on, or so the lovely and talented Erik Sherman argues. And he’s right: we want cheap, so we buy things made with low-wage labor; we want investment returns, and that causes companies to cut costs (often badly).
Now, you can be cheap and conscientious. Buy used items. Pay craftspeople to repair or remake items. Shop at local retailers rather than chain stores – which may mean that you buy less but buy better quality. Get rid of cable, and spend the savings on live performances.
Also, given the high cost of retirement and low rates of return in the market, we have to save money if we are going to avoid being a burden to younger taxpayers.
Because here’s the thing: one reason the middle class is so squeezed is that those in power are cutting back. They are less willing to pay taxes for schools and parks, less willing to offer employees defined benefit pensions or even an employer match on a defined contribution plan, and less willing to make employment secure than in past decades. The middle class then takes its insecurities out on the lower classes.
Frugality does not have to be bad for the economy, and it does not have to be oppressive (for the frugal person or anyone else.) I’d argue that it’s good for the economy for people to live within their means so that they can contribute capital and not be a burden. It’s also a rational response to a really rotten set of circumstances in this country.