The opinion pages of the New York Times, a reliably fertile source of hare-brained ideas (no offense to hares, of course), printed a column today displaying such an utter lack of understanding of fundamental economic principles that one could easily mistake the author for a member of Congress, rather than a financial columnist and the author of a book entitled “Dumb Money.”
Collectively, we don’t seem to have run our credit cards through shredders. Mailboxes are again stuffed with credit card solicitations. Newspapers are filled with come-ons from car dealers offering zero-percent financing. The Federal Housing Authority offers mortgages on houses for as little as 3 percent down. You’d be forgiven for thinking that we’ve flown back in time to September 2006.
And, believe it or not, that’s a good thing. The economic expansion that has been going along in fits and starts since June 2009 was initially powered by government stimulus and business investment. But for this recovery to mature, broaden and persist, the greatest economic force known to mankind — the American consumer — has to get back in the game.
In an economy in which consumers account for 70 percent of activity, credit is both a vital lubricant and the indispensable fuel. Money may make the world go ’round, but credit makes the gears of commerce run smoothly.
Many of our largest and most significant industries still have business models that rely on the use of debt to purchase goods and services. Unless you’re a multimillionaire, it’s difficult to make significant purchases — college tuition, a Viking stove, a Toyota Prius, computers, jewelry, a house — out of savings or cash flow from wages. The renewed willingness and confidence to spend money we don’t have is vital to the continuing recovery.
So, in other words, we’ll solve a problem caused by taking on too much debt to buy things we couldn’t really afford by taking on more debt to buy things we can’t afford!
The column concludes with the following gem:
Running up consumer debt may be a moral failure and a recipe for long-term damnation, but it also contains the roots of our short-term salvation.
Yeah, that works, just up to the point where the short-term becomes the long-term – a line we crossed in 2008. Then the “damnation” phase becomes inevitable.
By the way, I recently replaced my own stove with a new Sears Kenmore – highly rated by Consumer Reports - at a fraction of the cost of a Viking range. It cooks just as well as a Viking, and I can afford better food because I’m not wasting money on finance charges.
Millions of Americans are finally waking up and doing the same thing.
