To Save or Not to Save?

There seems to be two very different streams of thought flowing from our current economic difficulties. One is perfectly logical and contains the seeds of long term economic recovery. The other does little more than guarantee years, if not decades, of further recession.

Economists have recently reported that Americans are once again saving. They are taking a portion of their paychecks and putting it away in banks or credit unions for that proverbial "rainy day" that suddenly seems very close at hand. The current rate of household savings is five percent, a large increase over recent years when the rate was hovering around (and sometimes falling below) zero.

Furthermore, some economists believe that this is not just a temporary reaction to harsh economic times, but rather a true paradigm shift. Much like our grandparents, who quickly and permanently became frugal when the Great Depression hit, contemporary Americans are changing their buying, savings and investment habits. Going into debt for some new luxury item has taken a back seat to building some sort of personal economic stability. They are (to borrow a phrase from Bob Dylan) creating a "firm foundation (for) when the winds of changes shift."

An opposing philosophy, however, has also emerged. This one maintains that the answer to America's economic problems is credit, credit and more credit. Americans, so says those espousing this latter belief, need only to go further into debt to right our economy. This thought, sadly, has been put forth by none other than our President. Barack Obama has chosen Elkhart, Indiana, with its 15-plus unemployment rate, as his personal symbol of struggling America. The mainstay of the Elkhart economy is (or at least was) the manufacture of recreation vehicles. When hard times hit, people logically stopped buying RVs. Suddenly, owning a huge, self propelled mobile home didn't seem so pressing.

Consequently, Obama has openly stated in speeches that American banks need to have federal, tax-payer supported bailouts so they can make more loans to people wishing to purchase RVs. To his mind, this equals economic recovery: Joe and Julie Jones in Austin, Texas take out a loan for an RV so that Bill and Jill Smith can keep their job in Elkhart manufacturing RVs.

The problem with this approach is, of course, what happens when Joe and Julie lose their jobs? Suddenly, they have no means of paying off the RV loan. They default and, if enough of their neighbors follow suit, their bank collapses. In the end, the RV factory in Elkhart closes anyway and Bill and Jill are once again unemployed. And, to make matters worse, neither family has savings to fall back on.

Trust me. I'm not an economist, but even I can see that borrowing money is not the proper solution. It's not the answer to our federal budget woes and it's certainly not the answer to our personal economic problems. Both the public and private sector will fare far better if everyone concerned lives within their means, saves a portion of their income and, beyond anything else, stays out of debt.