Cold Shower Reality Check

I was reading the most recent edition of Fortune magazine and came across this compelling article by Geoff Colvin.

In this article he describes that from 2002 to 2007, in a period of economic prosperity, we Americans actually spent more than we made. This is significant because in prosperous times historically we tend to save for a “rainy day”. This fiscal responsibility has enabled us to weather the “rainy days” without forsaking all we have become accustomed to during prosperous times.

Colvin likens this behavior to Pharoah’s dream of the fat and lean cows. I can think of a fable that tells the same story (The Ant and the Grasshopper).I have heard these kinds of directives preached over the pulpit, broadcast on TV (a la Susie Orman), and touted on websites.

Whatever the source, the economic principle is always the same: everyone ought to live not only within their means but slightly below their means so that in times of famine/winter you can draw on those accumulated resources to sustain you.

Of course, the antithesis has been widely established and persuasively marketed for years too. With ever increasing home prices and 401k portfolios it seemed we could always tap into our “equity” to afford that new car, electronic gadget, recreational vehicle, or dream vacation. And as with so many other things in life the prudent, conservative path ends up being the road less traveled. So we find ourselves collectively in a mess. All of a sudden the hot water ran out and we are standing under the showerhead shivering from the ice water spraying forth.

So for now the government is encouraging us to get out and spend. Somehow borrowing from the future will magically make the hot water come out again. Wasn’t spending more than we had what got us into this predicament? I’m pretty sure it was, but the only way to get the economy moving forward is to spend. So we will now mortgage our kids’ American way of life to try and keep the ball rolling for us.

I will be the first to say that I will spend just as I have my whole life over, which is to say I will save some. It just feels good to put a little aside. I just hope that maybe we all lower our expectations of what we need to warm showers instead of ‘fog up the windows’ showers. It might even be good for you.