FoC (6) - Thrift and Prosperity

Thrift is the key to prosperity, so thrift is good. If households are thrifty during good times, they will not need to go into extreme thrift during bad times. If households are thrifty, everyone prospers and good times do not turn into speculative bubbles that are followed by serious recessions.

Debt is at the root of our crisis. We did not arrive at this bad place because consumers and government were saving too much and spending too little. We will not escape it by carrying on as we did before. There will be no foundation for a lasting recovery until Britain rediscovers the virtue of living within its means.

I despair when retailers say that "the downturn in spending is irrational”. No, it's not. People are steering away from the road to ruin. Shopkeepers can no longer expect customers to sacrifice themselves to rescue corporate profits.

Encouraging another burst of mindless consumption, without significant increases in productivity, can, perhaps, palliate short-term financial stress. But in the end, when the drug of excess runs out, the patient is wrecked. (Jeff Randall, Daily Telegraph).

Simple logic would dictate that excessive spending and loose lending standards caused this crash, so excessive spending and loose lending standards cannot possibly cure it. Indeed it is axiomatic that the problem cannot be the solution (Mish Shedlock).

Widespread thrift is only a problem when it follows a consumption boom fostered by foolish bank lending. In a free economy, different people will be in different situations. Some will be at a stage where they need to save for the future. Others will have things they need to purchase. Savers and spenders will generally balance each other out as interest rates adjust to clear the market.