To Spend or Not to Spend

That is the question.

Right now, the world is full of fear. People and businesses are hitting the brakes and becoming tight fisted with their money.

In a way, that's a good thing. Being out of touch with reality is partly what got us into this mess. However, a complete lack of spending will help us spiral farther and farther down to a very ugly place.

By spending less, companies make less. When they make less, they have to cut costs and jobs. When we see job cuts, we worry about our own jobs and reduce spending...

The idea reminds me of Keynes' theory on the Paradox of Thrift. The main difference between now and the 'good old days' is that thrift and frugality may actually help us a little bit (even though it results in lower profits and potentially more unemployment). By saving more, people are stuffing money into the banks. The banks have been weak, and new deposits can only help. I just don't know if a little frugality is enough to shore up the banks - I suspect that it's not.

So, while part of our economic problems are undoubtedly financial and are all about the numbers, another part of our problems are due to fear. I don't know the way out of it, but something has to reduce the fear in consumers and businesses so that they start to spend reasonably and responsibly.