Friday, December 30, 2011

New Year's resolution (and modern fable): Spend more!

In Aesop's ancient Greek fable of the ant and the grasshopper, the ant was right: Save for a rainy day. New Year's resolution for America in 2012: We need more grasshoppers.?

Perhaps you remember Aesop?s fable about the ant and the grasshopper. The diligent ant works tirelessly through the summer, storing food for the winter, while the grasshopper lays about munching on grass, and worse, making fun of the ant for his work ethic. When winter comes, the ant survives on his stores, and the grasshopper starves to death, having learned the lesson we now translate as ?saving for a rainy day.? But that 6th century BC fable from Greece doesn?t fit the 21st century AD economy in the United States. My research, encapsulated in a new book ?Against Thrift,? suggests we need to spend our way out of the current slump. If the ant and the grasshopper compared New Year's resolutions today, say, in a New York coffee shop, their conversation might go like this:

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Grasshopper: You going to sell the brownstone?

Ant: You know I can?t, the housing market is that bad. And I?m close to underwater, anyway. I can?t retire on debt. How about you?

G: There?s not much in my retirement account, not enough to live on, even with Social Security. I?m still in debt, too. Borrowed to send the boys to school.

A: I saved and you spent, and here we are. It?s nearly winter and we?re both broke.

G: We gotta spend more. I mean the government should tax the rich and the corporations, and use it to create jobs and increase social spending.

A: You?re kidding, right?? We need more personal saving and more private investment to get us out of this hole, not more government spending. That?s goofy.

G: Funny you use that word, because in the Disney short, the guy who does the Grasshopper is the voice of Goofy. You, I don't know who did your voice, probably Lawrence Olivier. But yeah, all the econ textbooks are going to tell you that private investment is the key to growth. In theory, they?re right ? or they were right until about 1910, and then the economy went in another direction.

A: I don?t get it.

G:?Nobody does. After 1910, outputs started increasing without any increase in the quantity of inputs, whether capital or labor. Lots of economists, and some of them won Nobel Prizes, have said, ?Yeah, technological progress made it possible.? Cheaper and better machines allowed output to go up. Others chalk it up to an organizational revolution: The new large corporations made for unbelievable labor productivity. Either way, private investment as a share of the overall economy has been dwindling ever since.

A: So all those conservatives who want to cut taxes to get more money in the hands of the private sector ?

G: ? are wrong. Think about it. The banks don?t need your savings. They?re already sitting on a trillion dollars they don?t know what to do with. Businesses don?t borrow it because consumers aren?t buying. But they would borrow and expand if we got more money in the hands of big-spending consumers. Investment follows the consumer demand curve, not the other way around.

A: But didn?t we try that with the stimulus?

G: The stimulus wasn't big enough to pull us out of a really big ditch. That?s why we need to tax the rich, help the poor, and boost spending now.

A: I have to be more like you? That is scary.?

G: That?s just the economics. There?s a moral component. We can afford to be our brother?s keeper, expand the welfare state, increase entitlements. We?ve already figured out how to pay people who don?t produce anything: transfer payments, entitlements, even Wall Street bonuses (because the financial sector really doesn?t produce that much). We have to live up to the promise of abundance and live by the ancient Judeo-Christian criterion of need: from each according to her abilities, to each according to his needs.

A: Our brother?s keeper??

G:?Think of it as a New Year's resolution. You can start by buying this round.

???James Livingston, a history professor at Rutgers University, is author of the new book "Against Thrift: Why Consumer Culture is Good for the Economy, the Environment, and Your Soul."??

Source: http://rss.csmonitor.com/~r/feeds/csm/~3/l_rHn09o-iw/New-Year-s-resolution-and-modern-fable-Spend-more

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