Still Not Taking Chances

In his most recent column for the New York Times magazine, Adam Davidson takes a look at the people who could give our economy a long-awaited boost: savers—basically people who have actual money to spend, but aren’t spending it.

How many of us have money saved up, but still feel a little too unsure about the economy to go out and spend—to move to bigger homes to accomodate our growing families, replace all the broken things that we own, or take a nice trip somewhere?

Davidson argues that it’s just not the savers who need to get a little riskier with their money. Banks, which have done things like reduced consumer credit to cut back on risks, need to get back in the game to generate growth, but play the game in a smarter way.

Too much risk creates crises, but too little prevents economic growth. Quantitative easing allows the Fed to take away those mortgage-backed securities and force banks to do something riskier with their money, like offer competitive loans to riskier people. Once everyone is putting his money into slightly less safe, and slightly more productive, investments, the economy will take off. That’s the theory, anyway.

Now, if only I can believe that the banks have actually learned some lessons from the financial crisis.


8 Comments / Post A Comment

Markham (#1,862)

His argument is that savers should spend their retirement and security away, and that Banks should take a “smarter approach” to allowing people to live on credit like they did from ’02 – ’08 (we had a negative savings rate and rapidly escalating debt loads) –

I understand that lack of demand is hurting the economy, but if that demand means that I have to sacrifice my financial security to generate it.

I’ll keep my money in the bank thanks.

CubeRootOfPi (#1,098)

So let me get this straight. The economy collapses and we in the general public are told that if we saved more and hadn’t spent so much on frivolous things/taken out such risky loans, then we wouldn’t be in this situation. We were overconfident in believing that the good times would last forever and should have been more financially responsible.

So we saved and started paying off our debts, including the ones we had to incur because the economy collapsed. Now the message is that we’re being overly risk-adverse. The economy won’t get any better…because it’s our fault.

All righty then.

@CubeRootOfPi Seriously, fuck this noise. There’s no public safety net for me if I DON’T save as much as I can, so why should my spending be the safety net for the economy?

I’m not too eloquent today, but I agree with you 110%.

The important thing to remember is that the problem is never institutional/structural. Because that would prove that late stage capitalism isn’t working so…’s your fault!

Slutface (#53)

There’s nothing I want to buy.

3jane (#645)

As I suspected before I even read the article, Davidson’s basing his premise on what happened during Japan’s lost decade. The problem with that is, even before the recession hit in Japan, the Japanese household savings rate was something like 20% (this is outrageously high). Even now, I highly doubt the American saving rate is ANYWHERE near that, so we probably do not need to be worrying too much about this issue for now.

Although I could be wrong! Everyone is welcome to tell me I’m wrong.

Markham (#1,862)

@3jane the American savings rate during the faux economic boom the savings rate was often under 1% if not negative.

People were indeed irresponsible and there is still some of that now I think in terms of how people react to things, but, no, we don’t need to spend more.

What we need to do is create tax incentives for companies to bring jobs back to the US. I.e. if you want to ship 10,000 jobs overseas than we tax the S*** out of you.

Mind you developing emerging markets is important, so make it balance as far as the % of jobs that can overseas.

I literally have to travel the world for my job due to how many things my client has outsourced, it makes me feel terrible when I think about how few of certain operations are in the US.

I mean if we could just make it 60/40 that’s a TON of Americans with jobs.


Nick (#1,548)

I’m saving/investing so I can retire early (at 45 in the best case scenario, 50 in the worst). In a sense it still feels like I’m buying something (time/freedom, which is more important to me than material possessions), albeit in the future.

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