Saving and Spending
(with no apologies whatsoever to John Maynard Keynes)
"Saving the savers is not the priority...This is surely the time to encourage
people to spend, spend, spend..."
- Editorial in the Financial Times, Tues 6 Jan.
"Borrowing our way out of debt...is exactly the right prescription for our
- Anatole Kaletsky, London Times, Thurs 8 Jan.
"If the stimulus package is too weak, conservatives will pile on after it
fails to deliver, claiming that the whole concept has been discredited..."
- Paul Krugman, New York Times blog, Sun 11 Jan.
WHATEVER THE RIGHTS and wrongs of trying to fix the blow-up in credit with fresh money and debt, it's time to spend! Spend! SPEND! regardless.
"I'll bring paper!" cry the laureates, and "I'll bring ink!" cheer the columnists, now rocking the boat in place of Percy Bysshe Shelley's poor rain-lashed poets, those unacknowledged legislators of the world.
And there, leaning over the double-pull press...sleeves rolled up, eye-shades on...the policy wonks and elected officials are busy setting the type.
"Only more debt can save us," they mutter, "from all the debt we've created. Hey! Call the type-casting guys...We need more dollar signs and zeroes, pronto!"
Will it work? Might it prove immoral? Can lumbering the future with new debts, just to patch over yesterday's mis-allocation of capital, ever be justified?
No matter. New spending and debt is just what we'll get...like it or lump it. This week's Washington bounce - scratched across equity, currency and commodity markets at Thursday lunchtime in New York - ran back into the red by the time London closed Friday. Whether promised or paid, it had totaled $1.3 trillion on one day alone! But why ever not?
"Even if you're deeply concerned about [our] future solvency," as Paul Krugman blogs from Princeton, "will going for, say, a $300 billion stimulus rather than an $800 billion stimulus do anything significant to help...?"
Put another way, "Obviously, the national deficit is important," says Joe Stiglitz, America's other No.1 bearded economist. (Well, joint-No.1 after Ben Bernanke perhaps...) But noting how some $300 billion of Obama's $800bn stimulus will be instantly swallowed by regional state budgets (now $150bn per year in the red thanks to the collapse in local and property tax payments), "we also have to decide at this juncture what is the priority," he smirked to Bloomberg on his way out the door from a conference last week.
"And the priority is stimulating the economy. If you don't stimulate the economy, the [government] deficit will get larger anyway, because GDP will go down and tax revenues will fall. So we're caught between a rock and a hard place...[and] we need to spend more right now...We need real stimulus spending."
Just roll back a moment, and you'll just how engrained this logic's become. The key words are "spending" its opposite, "saving". The former is good (new hiring and growth), the second is bad (job losses, lower tax receipts). And like pretty much everyone else who gets to make or commend government policy right now - perfectly sensible people such as UK economist Martin Wolf at the Financial Times, for instance - Krugman thinks Washington need to step up as "borrower of last resort"...hovering up savings and spending them, rather than letting them moulder on deposit.
Why? Because US consumers are too leveraged (and thus too high-risk) to raise a red cent. And yet the world needs them - or somebody wearing their pants - to keep spending. Who else ever goes shopping with such forceful abandon? Which means someone else has to keep supplying new credit. And in the absence of that...what with bank balance-sheets shot and emerging-world governments throwing their cash at domestic stimulus instead...someone else will just have to start printing cash.
Right or wrong just doesn't matter. Because it IS going to happen, whatever you think. So the best you can hope is to defend yourself and look after your own. Amid a credit depression, that means saving cash and cutting back spending. In the teeth of global inflation - such as the global money inflation running from 2002-2007 - it means exchanging cash for whatever else might just hold its value.
"If you do not buy goods," said John Maynard Keynes in his infamous radio speech, Saving & Spending, of January 1931, "the shops will not clear their stocks, they will not give repeat orders, and someone will be thrown out of work.
"The best guess I can make is that whenever you save five shillings, you put a man out of work for a day."
Fast forward 78 years, and now the United States wears that same responsibility, dumped onto British housewives by the Cambridge economist. Only the US, of course - here in our post-Keynesian, macro-minded 21st century - is liable for the employment of not just British dock-workers, but of the entire world. Most notably, or so consensus has it, the employment of three billion souls in emerging Asia.
"The US and a number of other chronic deficit countries have, at present, structurally deficient capacity to produce tradable goods and services," notes Martin Wolf at the Financial Times. "The rest of the world or, more precisely, a limited number of big surplus countries - particularly China - have the opposite. So demand consistently leaks from the deficit countries to surplus ones.
"In times of buoyant demand, this is no problem. In times of collapsing private spending, as now, it is a huge one. It means that US rescue efforts need to be big enough not only to raise demand for US output but also to raise demand for the surplus output of much of the rest of the world."
Did you get that? The Anglo-Saxon weakness for using, not making...for eating, not growing...leaves more productive nations short of their No.1 market now our credit bubble's blown up. So like Stiglitz says - only with bells on - Obama better start spending...and start spending big! Otherwise, the social unrest spied by Beijing's policy wonks risks turning into outright social collapse in the world's most populous nation.
If that seems a pretty big burden to dump on US consumers, then no matter. Step forward the US government to pick up the slack. Truly, madly and ever-so deeply, it's hard to over-state the "big picture" analysis driving this global consensus right now. If US consumers can no longer support Asia's capitalist boom, then the US government will have to do it instead. "This was a burden that crisis-hit Japan did not have to bear," Martin Wolf continues. Because deflation-hit Tokyo had only ever remained a net exporter, not a chronic consumptive. Not even 10 years (and more!) of zero-returns paid to cash has managed to reverse that fact.
Whereas the guilt piled on US consumers - already told to "Buy American!" before Obama even takes office - will only be matched by the mountains of money needed to supply them with credit.
"Therefore, O patriotic housewives, sally out tomorrow early into the streets and go to the wonderful sales which are everywhere advertised," as John Maynard Keynes said.
"You will do yourselves good - for never were things so cheap, cheap beyond your dreams.
Keynes advising laying in "a stock of household linen, of sheets and blankets to satisfy all your needs." Less philanthropic investors...less convinced of the "added joy that they are increasing employment," might want to lay in a stock of hard assets by Buying Gold, fine wines, agricultural land, whatever can't be printed or inflated to zero.*
Because you will be setting on foot useful savings amid the blizzard of paper now heading your way...bringing a chance of useful activity via future investment...once the new bubble in money explodes in turn.
* Disclaimer: "These are only examples," in the words of John Maynard Keynes, part-father of the Dollar's reserve-currency status - and scourge of the failed Gold Standard.
"Do whatever is necessary to satisfy the most sensible needs of yourself and your household..."