Thursday, January 8, 2009

Doing More With Less

So I happened to catch part of today's "To the Point." One of the points that guest David Smick made was that the "Marginal Propensity to Consume" (oversimplified, this is the amount of spending that an extra dollar of income would inspire) has dropped quite a bit. During the high-leverage times of the recent economic boom, Americans' MCP was, on average, $1.20 for every extra dollar that they earned, up from what was considered a normal level of about 75¢ for every dollar earned. In the present economy, MCP has dropped sharply - down to about 52¢ per extra dollar of earnings. (For comparison, the MCP for the last round of stimulus checks came in at about 66¢ per dollar.)

What this means is as follows - back in the day, an extra $1,000.00 windfall would prompt about $1,200.00 in new spending. Now, that same $1,000.00 of extra cash will only add up to $520.00 in new spending, with the rest of it going into the bank. So people are talking about how to raise the MCP, by buttressing consumer confidence. But the problem is that as people go up the income ladder, the smart ones don't spend all of the money - they save or find safe places to invest it. So if we can't find a way to keep the economy humming on a relatively low (read: sustainable) level of MCP, we're still going to be in trouble. While President-Elect Obama can channel John F. Kennedy and say that the question we should be asking ourselves isn't "What's good for me, but what's good for the country my children will inherit?" not only does this leave those of us without children free to be selfish, ☺ but postulates a scenario where one can't have both. And this is a situation that strikes me as fundamentally broken.

I don't see how an Obama administration is going to be able to convince people that sacrificing their economic well-being for the chance of a better outcome for future generations is the thing to do. In the same way that "98 Percent Of U.S. Commuters Favor Public Transportation For Others," most Americans are going to want their neighbors to do this - so they won't have to.

No comments: