The bad news is, Americans are saving again.
Economists call it the “paradox of thrift.” What’s good for individuals — spending less, saving more — is bad for the economy when everyone does it.
On Friday, the government reported Americans’ savings rate, rose to 2.9 percent in the last three months of 2008. That’s up sharply from 1.2 percent in the third quarter and less than 1 percent a year ago.
Like a teeter-totter, when the savings rate rises, spending falls. The latter accounts for about 70 percent of economic activity. When consumers refuse to spend, companies cut back, layoffs rise, people pinch pennies even more and the recession deepens.
The downward spiral has hammered the retail and manufacturing industries. For years, stores enjoyed boom times as shoppers splurged on TVs, fancy kitchen decor and clothes. Suddenly, frugality is in style.
As the stimulus plan is debated in Congress and the GOP tries to trash it, remember who brought us to this state in the first place. Republicans thought that easy credit could replace increasing wages but they proved again that they know nothing about building an economy and everything about making business rich. How about prosperity for everyone who helps build a real economy?