New Year's resolution (and modern fable): Spend more!
Perhaps you remember Aesop鈥檚 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 鈥渟aving for a rainy day.鈥� But that 6th century BC fable from Greece doesn鈥檛 fit the 21st century AD economy in the United States. My research, encapsulated in a new book 鈥淎gainst Thrift,鈥� 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:
Grasshopper: You going to sell the brownstone?
Ant: You know I can鈥檛, the housing market is that bad. And I鈥檓 close to underwater, anyway. I can鈥檛 retire on debt. How about you?
G: There鈥檚 not much in my retirement account, not enough to live on, even with Social Security. I鈥檓 still in debt, too. Borrowed to send the boys to school.
A: I saved and you spent, and here we are. It鈥檚 nearly winter and we鈥檙e 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鈥檙e kidding, right?聽 We need more personal saving and more private investment to get us out of this hole, not more government spending. That鈥檚 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鈥檙e right 鈥� or they were right until about 1910, and then the economy went in another direction.
A: I don鈥檛 get it.
G:聽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, 鈥淵eah, technological progress made it possible.鈥� 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 鈥�
G: 鈥� are wrong. Think about it. The banks don鈥檛 need your savings. They鈥檙e already sitting on a trillion dollars they don鈥檛 know what to do with. Businesses don鈥檛 borrow it because consumers aren鈥檛 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鈥檛 we try that with the stimulus?
G: The stimulus wasn't big enough to pull us out of a really big ditch. That鈥檚 why we need to tax the rich, help the poor, and boost spending now.
A: I have to be more like you? That is 蝉肠补谤测.听
G: That鈥檚 just the economics. There鈥檚 a moral component. We can afford to be our brother鈥檚 keeper, expand the welfare state, increase entitlements. We鈥檝e already figured out how to pay people who don鈥檛 produce anything: transfer payments, entitlements, even Wall Street bonuses (because the financial sector really doesn鈥檛 produce that much). We have to live up to the promise of abundance and live by the ancient Judeo-海角大神 criterion of need: from each according to her abilities, to each according to his needs.
A: Our brother鈥檚 keeper?聽
G:聽Think of it as a New Year's resolution. You can start by buying this round.
聽鈥撀燡ames Livingston, a history professor at Rutgers University, is author of the new book 听听
