Saving More and Buying Local
May 13, 2009 9:59 AM
One of the fundamental ways in which the American economy is changing is that people are saving more. In the long run, this is a good thing. It means more investment and a stronger, more resilient economy. But in the short run, it's going to be difficult as the consumer-based economy shrinks, and we transition into an economy with a level of consumer spending that is a good deal less than it was before the recession.
In 2005 the cumulative national savings rate was negative 2.7%. In other words, Americans actually spent more than they saved that year. That compares to a high savings rate of 14% in the 1970s and national savings rates of 20% or so in many other industrialized countries.
But the consumer-based economy was fueled by two trends that are long gone and may not return anytime soon: a rapidly rising stock market and skyrocketing real estate values. For years, every time we opened our 401(k) statements or got our annual home assessments we felt richer, so we felt free to spend more. When the real estate bubble burst and the market followed, all that wealth went up in smoke.
Now that we're back down to earth, we're saving again because we believe we need to. We can't just rely on growth in our portfolio to carry us along.
That's the big national trend. Locally, the steady stream of layoffs in the private sector will now be followed by several hundred State of Wisconsin jobs lost plus an across the board pay cut in the form of unpaid furloughs for just about all of the 47,000 state workers in Dane County as well as those in the rest of the state.
The result of all that is that we probably have a tough transition ahead as consumer spending falls and businesses that relied on it face hard times.
It seems to me that one answer could be an even greater emphasis on buying local. Every dollar spent in a locally owned business kicks around in our community several times before leaving it. The multiplier effect of local buying could be one thing that lessens the blow as we transition to a production based economy and we deal with the state budget adjustments that will hit local businesses. In 2007, we enacted a buy local policy for city government to encourage local purchasing and give preference to local vendors.
For more on the increased savings rate read Sunday's article in The New York Times at http://www.nytimes.com/2009/05/10/business/economy/10saving.html?_r=1&ref=todayspaper