Over and over I hear the cry from Washington (and the other pundits I reference) that we must get credit flowing and get people buying. The flawed concept of the paradox of thrift has raised its ugly head again.
Washington does not want you to save. It wants you to spend, spend, spend, spend.
But, how can the process of borrowing and spending, which got us into this mess in the first place, also get us out? It does not make sense.
To point to our recent experience does not seem to provide a convincing argument against the insanity that passes for economic “stimulus.” People look at declining sales figures and they think that this spend, spend, spend argument actually makes sense. Trying to point out the effect of time, among other influences, just does not seem to make an impression.
I remembered one example of a consumption economy that might provide good evidence of the fallacy of stimulating consumption and disparaging saving-the Island of Papua New Guinea.
Jared Diamond began his quest and he subsequent book, Guns, Germs and Steel, in Papua New Guinea. Diamond sought to answer the question, “Why do other people in the world have so much stuff?” (If you have not read the book, do so. Or you can find the video on YouTube.)
Telling you the conclusion in part will not ruin the story for you.
The nature of the ecosystem on this small island nation required that they work constantly to provide for their needs. That island had the model consumption economy. And guess what. They did not have much stuff. They lived in poverty for centuries because they could not save.
It seems the architects of economic stimulus want this country to become a large scale Papua New Guinea. Perpetual consumption. Perpetual poverty.
