Novel Idea: Maybe It Isn’t OUR Job to Revive the Economy

“The role of consumers has had considerable attention in the press because the economy desperately needs additional spending right now. But it is not – and should not be – the responsibility of middle-income families to provide that spending.”

Robert Frank made a good point this weekend.

Possibly the most frustrating part of the economic recovery debate has been the willingness of many policymakers and thinkers to lay the responsibility of recovery at the feet of the American consumer. Luckily, economists (like Mr. Frank) and think-tank types (like our own Alejandra Lopez-Fernandini and Rourke O’Brien) have been presenting the argument in recent weeks that, quite likely, we should give families signals to save and perks when they do. From last Thursday’s USA Today:

Yet those Americans who choose prudence should not be made to feel unpatriotic — as if they are destroying the economy of their country — because they fail to spend recklessly. It’s time we move beyond this economic belief that places the health of the U.S. macroeconomy squarely on the willingness of individual households to spend, spend, spend.

It’s an uphill battle. Unfortunately, Mr. Frank seems to oversell and overcomplicate the “paradox of thrift” a bit — making it a central caveat to his argument when there are both benefits to saving (like giving banks the confidence to lend again) and straightforward ways around the negative macroeconomic aspects (like Mr. Frank’s plea to let government increase spending to not only make up the “loss” of families reigniting the concept of thrift, but to spend enough to jumpstart the economy).

Regardless, it’s a refreshing and all-too-rare argument these days. We can all agree that it is in our long-term interest to promote saving and responsibility; it shouldn’t be the exact opposite in the short-term.