Anil Dash and Mike Monteiro have launched a web site evangelizing the idea of appreciating what you have. The idea is simple and may be particularly compelling during a recession, but should probably be in the backs of our minds all the time.
I’ll share a little story along those lines. I drive an old car. It gets bad gas mileage and has uncomfortable seats. I would love to drive a new car. But the truth is I don’t drive an awful lot and the car runs really well. A couple of years ago I mentioned to my mechanic that I was considering getting rid of it, and he told me that if I did, to let him know, because he would be interested in buying it. At that point, I looked at the car with fresh eyes. If your mechanic wants to buy your car, it’s not time to sell it.
Just recently I’ve gotten a problem with the driver’s seat fixed, replaced the tires with nicer ones than I probably would have ordinarily, and resolved myself to sticking with it for another couple of years. I bought this car because I loved it, and as it turns out, I still love it.
This mentality is why car manufacturers around the world are in so much trouble, and why the government is pursuing fiscal stimulus, but for an individual, I think it’s the most rational approach.
April 22, 2009 at 3:05 pm
The other day a friend and I were talking about cars and he said, “I thought about getting a new truck. Then I went out and spent the equivalent of 1 months payment on a new stereo system. Now I feel like I’m driving a brand new truck.”
April 23, 2009 at 10:16 am
First of all, I absolutely agree with what you’re saying.
Secondly, though, I wanted to comment on the seemingly common sentiment that what is smart for the individual (frugality) is harmful to the economy in the whole. Such a leap is so apparently illogical that the burden of proof should be on anyone making it, and the rest of us should be very reluctant to repeat it as a given.
In fact, I assert that any economic policy which assumes this dichotomy is doomed to long-term failure.
April 23, 2009 at 11:09 am
I don’t believe individual frugality is harmful for the economy as a whole, but a sudden drop in consumption is. In other words, had we been frugal all along, we probably wouldn’t be in this mess in the first place. But we were not frugal, we were profligate spenders, which created an artificially large economy. Now the economy is shrinking and it’s going to cause a lot of pain and dislocation. (See also my post with the shirt metaphor.)
April 23, 2009 at 1:25 pm
I’ve heard that exact sentiment repeatedly, but I don’t “buy” it. And I’ve not heard anyone justify the assertion with anything other than opinion and analogy.
Granted, that’s all I’m offering myself, but I consider the burden of proof to be on the party that is claiming the conclusion which is more contrary to plain logic. That is the party which is asking consumers to delay or minimize their personal frugality until things “get better”.
To use an opposite analogy (again, not proof, I know), which at least some other economists support, “pay me now or pay me later”. i.e. the longer we drag this out, the worse it will be. Or “if you rip the band-aid right off, it’ll hurt less in the long run”.
Looking for your T-shirt post…
April 23, 2009 at 2:54 pm
Here’s the t-shirt post:
I don’t think that individuals should be less frugal to help the general economy, but it is inarguable that increased frugality in an economic crisis worsens the crisis. Individuals behaving rationally and intelligently makes things worse on a macro scale.
Keynes called it the Paradox of Thrift: http://en.wikipedia.org/wiki/Paradox_of_thrift
April 23, 2009 at 2:56 pm
Here is the post Rafe mentioned.
Doug, on the topic of frugality I think it depends on why you are being frugal.
a) If you are frugal because you are always frugal, you are doing no harm to the economy. You aren’t changing you spending habits. Some could argue that Rafe’s choice to drive an older vehicle is in fact helping auto stores and mechanics (while harming auto manufactures and dealerships).
b) For others they may have to be frugal due to job loss, excessive debt piled up over the years or other reasons. While their frugality is damaging in the short term, it’s in the economy’s best interest for them to get their financial house in order.
c) The “fearful frugals” are the ones that are harming the economy as they have money to spend, secure jobs but they are pulling back on spending because they are afraid. This is money that could and should be spent on “stuff”.
My wife and I are in between A and C right now. We have always been a bit tight with our money and have a bunch of “shovel ready” projects to fund but aren’t. Our major roadblock isn’t economic (it’s health related), but the economy is certainly causing us to be more cautious with our money then we would in good times which is not good for the economy.
April 23, 2009 at 3:04 pm
Wait… you used Keynes and “inarguable” in the same idea?
Reading your T-shirt post now…