INTRODUCTION
ADVERTISEMENTS OFTEN PROVIDE instructive lessons in economic conventional wisdom. Pay attention to ads on television, bus stop shelters, or YouTube and eventually you will see one for a “savings scold” business. These are the banks, financial services companies, and lifestyle coaches that make their living advertising strategies to save more money, often by hectoring people for not saving enough. They come in various flavors: Suze Orman, who caters to middle-aged women, promises that you can “be the master of your own financial destiny” with her financial advice products.1 Dave Ramsey, whose branding is aimed more at conservative Christians, offers a “Financial Peace University” that you can sample with a fourteen-day free trial.2 A man calling himself “Mr. Money Mustache,” who skews more crunchy and environmentalist, promises early retirement through something called “badassity” (which in practical terms means saving about 50 percent of your income).
Savings scolds promise that people can improve their financial lot by being frugal and investing wisely. Theirs is an individualist creed that tends to implicitly blame people for financial misfortune. If you are poor or in debt—well, you should have made better decisions!
The coronavirus pandemic provided an interesting test case of what would happen if the whole population actually followed the savings scolds’ advice all at once. In early March 2020, gripped by fear, the American populace abruptly stopped going to restaurants, movie theaters, gyms, and other public locations—which were closed by most state governments quickly afterward anyhow. Professional sports seasons were canceled. Airline travel plummeted by 96 percent.3 The stock market fell sharply.
The federal government soon provided a huge economic rescue package to help people weather the crisis. As part of the CARES Act, it sent out $1,200 checks to most individuals, increased unemployment benefits, and provided hundreds of billions in grants to small businesses. That flood of money, plus the fact that most people weren’t going out to spend money on their usual activities, meant the savings rate shot up to its highest rate ever recorded—from 7.6 percent in January 2020 to 33.7 percent in April.4
What happened as a result? A nearly instant economic depression. New unemployment claims jumped from 256,000 to 6.1 million in three weeks, and the unemployment rate jumped from 3.5 percent to 14.8 percent.5 The first quarter of 2020 saw gross domestic product (GDP, which is basically a summation of the whole of economic production) shrink by 1.7 percent in absolute terms, and GDP declined further in the second quarter, by a whopping 9.5 percent—probably the greatest single-quarter shrinkage in American history.6
Why did all this happen? Because income and savings do not exist in a vacuum—on the contrary, they depend on each other. When I spend money, I provide income for somebody else; conversely, my income must ultimately come from somebody else spending. If we all drastically cut back on our spending at the same time, then the economy just grinds to a halt.
It was an object lesson in both the impossibility of the broad population actually following the advice of the savings scolds and the fact of economic interdependence. One person might be able to accumulate a vast hoard of assets and retire at thirty by living a life of extreme frugality (if they are lucky and have a good-paying job), but because about two-thirds of the economy consists of consumer spending, the people as a whole cannot.7 Indeed, despite the basic pitch of the scolds being about saving for retirement, none of the people mentioned above are actually retired themselves. Orman, 69, and Ramsey, 60, are running veritable advice empires, and while Mr. Mustache, 47, quit his job in software, according to a New Yorker profile, he makes $400,000 per year from affiliate links on his website.8
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The pandemic, and the economic collapse it caused, briefly silenced one of the commonest questions in American politics: “How are you going to pay for that?” Though President Trump utterly bungled the executive branch’s response to the virus (indeed, in the critical early stages his administration did largely nothing except downplay the pandemic and confiscate shipments of protective gear that were headed to hospitals and state governments), the CARES Act was passed without so much as a whisper of complaint about payment.9 Large corporations first got $454 billion, to be doled out at essentially the sole discretion of treasury secretary Steven Mnuchin, and this was soon levered up into a $4.5 trillion loan program by the Federal Reserve. Small businesses got a loan program of $349 billion (later increased to $659 billion), in which the loans would be forgiven if the funds were spent on payroll or certain other expenses. As noted, unemployment insurance was dramatically (though temporarily) boosted by an additional $600 per week for most people who had been laid off. Hospitals got $50 billion to deal with pandemic expenses.10
Though the rickety American government struggled to implement the programs (particularly at the state level, where many unemployment programs have been deliberately designed to pay out as little as possible, meaning that many people who were eligible for benefits could not collect), all told it was a remarkably aggressive response to the financial aspects of the crisis—especially the unemployment portion, which made the program much more generous to lower-income citizens than similar programs in any European country.11 Indeed, the extra $600 (so chosen because state unemployment systems were too janky and decrepit to give out 100 percent of someone’s previous income, so Congress simply tacked on a flat amount) meant that many workers making less than the average wage were being paid more after being laid off.12 For the lowest-income workers, it was a lot more.
In the initial panic—particularly when the stock market was collapsing—virtually no one raised concerns about where all of this money was coming from or how it would be paid back.
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Questions like “How will you pay for that?” are rooted in a very old way of thinking that sees the economy as something outside human control. Instead of controlling economic production to achieve things we want—higher wages, for instance—we must bend ourselves to the inescapable economic winds. If someone wants better pay, they must educate themselves so they can get a better job. If jobs are being shipped overseas, that means American workers have simply become uncompetitive and must accept wage cuts. If we want a new social program, then every single dime must be accounted for through taxation beforehand, because the state can only be a burden on the economy. This is where savings scold thinking—the idea that economic outcomes are entirely the result of individual effort and decisions, and therefore people can always save as much money as they want, if they have sufficient willpower and smarts—comes from. This ideology is often called neoliberalism today, but it dates back all the way to the Industrial Revolution in the late eighteenth century. Because its central tenet is that property rights should be the inalterable foundation of politics, I will call it propertarianism (borrowed from the Ursula K. Le Guin book The Dispossessed).
Propertarianism has been crumbling since the 2008 financial crisis. It has been a long time since the early 1990s, when the Soviet Union collapsed and it seemed capitalism would rule forever. Political scientist Francis Fukuyama suggested in 1992 that capitalist liberal democracy would be the “final form of human government,” leading to an effective “end of history.”13 Whoops!
The coronavirus pandemic shows one way in which the savings scolds are wrong. In times of crisis, the state must act swiftly to keep the entire economy from falling to pieces. But that is only part of the situation. It is not just the case that the state has to rescue people in times of emergency, or that we could fund social programs by cutting the military, though both of those are definitely true. The real deep-down truth is this: the whole economy is the result of human choices and actions, above all through the state. There is no such thing as an economic system that exists outside state support and control—especially in a huge, rich, and powerful country such as the United States, which controls most of the key levers of the global economy. The United States has an unparalleled ability to harness resources through its taxation power, its ability to print money, and its ability to control finance, trade, and economic production in general.
Copyright © 2021 by Ryan Cooper