The Unemployment-Tightwad Connection

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An adviser to President Obama explains that low consumer demand for goods and services is what’s responsible for the country’s high unemployment rates. In other words, because people aren’t spending money, other people don’t have jobs that would have been funded largely by that spending. And why aren’t people spending? One reason is that they don’t have jobs. Welcome to the vicious-circle, which-came-first economy.

Presidential adviser Christina Romer, quoted in the NY Times, explains how the unusually high and long-lasting unemployment figures are fallouts of the financial crisis—specifically the sharp drop in consumer spending that occurred during and after the recession:

“It reflects the fact that we are still feeling the effects of the collapse of demand caused by the crisis,” she said. “Indeed, at one point I had tentatively titled my talk, ‘It’s Aggregate Demand, Stupid,’ but my chief of staff suggested that I find something a tad more dignified.”

Romer and other economists argue that the nation cannot be resigned to accept a sustained period of high unemployment—which is exactly what many observers say we’re bound to endure. And why would a high-unemployment era be bad? Well, obviously it’d suck for all of those people out of work. But the bigger concern seems to be the corresponding drop in consumer spending—not just by the jobless, but also by the tens of millions who feel they’re on the verge of becoming jobless. The “new normal” would be high unemployment, instability and fear even among those earning salaries, and, most damaging of all to the economy, an increase in tightwad tendencies.

The economy just doesn’t do well in a nation of cheapskates.

So we’re left with a mixed message concerning the old-fashioned American virtue of thrift: that it’s good for you personally to save, but collectively, we need to spend to keep the economy humming along.

So which came first in terms of consumer spending and unemployment? Correct me if I’m wrong, but most people scaled back on spending only after jobs began disappearing en masse. So instead of blaming no-spend consumers for high unemployment rates, how about we figure out ways to get them jobs—good, stable situations that they can count on, maybe even with benefits? Once that happens, consumer spending will take care of itself.

Unless, of course, it’s too late, and the “new frugality” is here to stay. If that’s the case, I guess some of the blame for a struggling economy (and high unemployment rates) can be placed on folks like me, who have been preaching the gospel of live cheap, spend wisely and when necessary, and save what you can.

Related:
The Egg McMuffin-Unemployment Connection