When prudence is unwise

Income drives expenditure. Other things do, too – credit, inflation (or the lack of it), war and a mood that things will get / are getting better. We educate people to be prudent, to save for the ‘rainy day’, to anticipate their costs of retirement and old age. Societies that live within their incomes are generally happier than those that live irresponsibly, aren’t they?

Up to a point. Economies are funny things. They tend to reflect realities sooner or later. Quite often it is later and that is why people live irresponsibly. ‘Eat, drink and be merry, for tomorrow we die’ is the cry of a hedonist. But s/he may actually be fuelling an economy that without their extravagance would look very sick and depressed.

There really is ‘a time to spend and a time to save’.

Unfortunately the economic vision of the average person is short-term. When times are good they spend, when times are bad they reduce their spending. It should be the other way round. Save from the surplus, spend to improve the economy. Odd that so many are scared that their aircraft may crash (they hardly ever do) but are seldom concerned that their economy may crash (it often does). In neither situation are we in control of the event but we contribute to both. We shouldn’t rock the economy any more than we should rock the ‘plane.

So where are we now? Is the world economy slowing so much that we will see another Lehman Brothers slump? The world economy is slowing. China has the biggest impact on it now. During the years of excessive development China was buying big tracts of America with its surplus earnings. The pace has slowed and looks like slowing further. The cycle of boom and bust may not be as bad as last time but it is going to happen again in 2016.

Prudence or extravagance? I’m rather old-fashioned about these things. I like to work, to get paid for what I do and to spend about 90% of it on necessities and – if there is any left over – luxuries. I am sceptical about manufactured money, wary of government gifts for which we have not had to work – it’s our money anyway, why take it away only to give it back? There’s surely a large admin cost involved in doing that.

I like the teapot on the mantelpiece into which we put our savings so we can spend when things get tough or we need a holiday. Today it is a virtual teapot, of course, and I can cope with that. I think the complexification of finance is a pain and works for the interests of those doing the complicating, not those it is supposed to serve. I used to like my bank manager. Now I don’t even know his or her name.

How do I sum up, and act upon, the economy’s need and one individual’s prudence? Mainly by trying to see who needs what most and working out how I can help them, I suppose. Life was meant to be enjoyed. I will only enjoy it if I see others doing so reasonably too.