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A New Era Of Responsibility Bad For Economy?

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I know I’ve been saving a lot more of my money. Not that I overspent in the first place, but I’ve been cutting back a lot on expenses where I can.

But our economy is based on the idea that people spend, spend, spend. And that could be coming to an end.

Grant McCracken explains how this could play out…

The standing expectation is that consumers who scale down will scale back up when prosperity and credit return. But it is possible that the new, more modest, positively Amsterdamian, consumption pattern will prove sticky. This is what happened in Japan in the 1990s. Consumers gave up free spending ways and never came back. As Tabuchi put in in the New York Times, “free-spending consumers [turned] into misers, making them a dead weight on Japan’s economy.”

Here’s the thing…the fact that we collectively spent much more than we saved was a VERY bad thing. Having Americans be so far in debt simply doesn’t work and if we all turn into misers, well, is that really the worst thing in the world? Because that’s most likely what will be happening all across the world too as people try to find value instead of buying anything they damn well please.

Still, it’s scary because those are exactly the conditions that can cause a deflationary spiral and record unemployment. Because if people don’t buy, then businesses don’t have to hire more workers and that brings about double digit unemployment which could easily lead to a new Depression.

Will you scale back up when the economy returns? Or are you forever changed?