business news in context, analysis with attitude

Had a piece yesterday about a story in the Wall Street Journal saying that smarter decisions by consumers could actually be bad news for retailers and the nation’s economy.

The argument is that a new thriftiness being embraced by many American families, is “a major reason the downturn may not soon end. Americans, fresh off a decades-long buying spree, are finally saving more and spending less -- just as the economy needs their dollars the most.

MNB user Daniel P. Wallace wrote:

The model for development of the Asian economies was: high savings rate, low consumption, accumulate capital, which lowers the cost of investment AND drives down the currency, increasing the attractiveness of exports, then invest that capital in export-oriented industries in order to import wealth.

The American people sometimes need to be whacked over the head. It took $4.00 gas prices to shift the national attitude toward fuel economy. It appears to take an economic jolt this bad to turn us into savers. The reality is that as a nation we've been spending beyond our means for decades, which cannot help but impoverish us. The shift from consumption to savings is another step on that road - unfortunate, but necessary. It will make near term recovery harder but will help in the long run. It is a trailing indicator of the end of American economic hegemony.

Another MNB user wrote:

The paradox of paradigm shift…normal is currently being redefined…

You got that right. We’ve been saying that here on MNB for more than a year.

MNB user Cleve Young wrote:

I just don’t get why the ‘experts’ are so worried about the supposed new ‘Thrift’ culture taking hold. For one I’m still dubious as to how long and strong the conversion to a thrifty lifestyle will be. But even granting that a certain amount of thriftiness embeds itself into our culture how can that be a bad thing for retailers? Yes, in the very short term it will pinch sales for many retailers, but after a short time people will continue to spend their money. And while growth in personal income may not be great and in some cases negative, on the whole it’s not like the available money consumers have to spend is going down in double digits.

The biggest factor here is the heightened sense that the unknown is so close at hand. I firmly believe people will spend the same amount, but it will be spent differently. So instead of the $35,000 car it is a $25,000 car with the other $10,000 going towards???? It’s all of those question marks that make retailers and ‘experts’ uneasy, because at this point they simply don’t know what the answer is. And when they don’t know the answer they worry and postulate, often to their own detriment. As you so often say those who succeed will be the retailers who anticipate and fill the coming needs.

And while I’m certainly no financial genius I have lived enough life to have figured out some basics of money management. If I borrow lots to buys lots then I end up with less. All of the money you pay for interest and for ‘stuff’ you don’t really use is all money that could be applied to things you actively use. So a great big house with huge interest payments and a big 4-wheel drive dual-cab truck to haul groceries with is all wasted money I could be spending on stuff I use (and want). So I can be ‘frugal’ and still have more and live better. So once I make the transition to a ‘frugal’ life and I’m buying more with a higher life satisfaction, please explain to me again how this is a problem for retailers? Maybe they need to get used to not just selling me ‘stuff’ but rather ‘stuff which has value to me’.

MNB user Jim Swoboda wrote:

Our country and our citizens, in general, have been spending money like drunken sailors (maybe that is a disservice to drunken sailors) and that can not continue. Getting not only business balance sheets cleaned up, but those of consumers, can only result in a strong future. Yes, our nation is a nation of consumers. But far too much so.

A better balance between living and spending within one's means (both government and citizen) would be a good place to be. Getting to any good place usually involves some pain and this time is no exception.

Responding to our story about Massachusetts considering Internet sales taxes, and our feeling here that national Internet sales taxes may be inevitable during this economic slowdown, one MNB user wrote:

Trust me, once states start taxing internet sales you will see Internet company quickly go out of business as currently the have two advantages over B & M, and that no tax and free shipping. Once gone, so are they.

Another MNB user wrote:

Here’s a novel idea, look at every single line item in the budget and decide if it is necessary. State legislatures have now gotten in on the earmarks, so let’s cut every single discretionary expense, realizing that we are going to have increase unemployment benefits temporarily…

Internet sales taxes should be way down the list of things to look at or consider.

Yet another MNB user chimed in:

Why do you think this in 'inevitable'? Taxing the internet is an absolutely insane and unmanageable idea. Don't roll over and let them pick your pockets further!!!!

I am not surprised it is Taxachussetts that is trying to push this.

The whole "crisis" is simply a wake up call for everyone to live within their means, at the individual, community, state and national levels. That includes Congress!


I just read today that the new administration is adding 600,000 jobs. To the public sector. More government jobs!! Bigger government, less efficiency, less accountability, and if we don't keep tabs on our government, more $900 coffee pots....

MNB user Nancy West wrote:

After reading your piece on Mass. contemplating an internet sales tax users already pay a sales tax & service fees itemized on their monthly internet provider statements. This I feel is double taxing the consumer for the same service. In the past year, I've seen more people heading to their local library and get online for their allotted 1/2 hr. timeframe to do all of their basic business and leave. Maybe there needs to be a 'socialized' internet access vs. a monopoly from the providers? It would be interesting to see how this unfolds down the line.

KC's View: