Should We Spend Or Should We Save?

by Jan Baughman

July 1, 2002


President Bush lamented in his June 29 radio address that, "This week, we learned of another deeply troubling accounting scandal at a major American corporation [WorldCom]. Reports allege that the company hid nearly $4 billion in expenses, and reported profits when it may have actually lost more than a billion dollars." While he was under anesthesia for a colonoscopy, and Cheney was enjoying two hours of officially acting as president, word came out that Xerox's similar two billion dollar 'mistake' was adjusted to $6.4 billion.

"Despite recent abuses of the public's trust, our economy remains fundamentally sound and strong," Bush reassured. "The government will fully investigate reports of corporate fraud, and hold the guilty parties accountable for misleading shareholders and employees."

"An executive whose salary or bonus is tied to his company's performance makes more money when the company has done well. That is fair when all of the accounting is done above board. Yet, when bad accounting practices make the company appear to be more successful than it actually is, corporate executives should lose their phony profits gained at the expense of employees and stockholders." More on that to follow.

Just the other day, on June 7, the president celebrated the one-year anniversary of his pride-and-joy tax relief with a speech in Iowa, providing his viewpoint on Economics 101:

"The best way to make sure we've got a strong farm economy and to make sure our economy recovers from the recession is to let people keep their own money.
I believe that when you let a person keep his own -- his or her own money, they're going to spend it.
And when they spend it, it increases demands for goods and services.
And with an increase of demand for goods and services, somebody has got to produce that good and service.
And when they produce it, it means somebody's going to find work.

And according to the White House, "One year after President Bush signed the tax cut into law, the economy is growing, consumer spending is up and America is on the path to economic recovery.

Our economy is much stronger today than it was a year ago:
* Economic growth has returned: 5.6% in the first quarter of 2002 compared to 1.2% in 2001.
* Residential investment is growing faster right now than it has in almost six years: the fastest quarterly gain, 14.6% in the 1st quarter.
* Consumer confidence in May was at the highest level in a year and a half.
* Home sales and the real estate market are historically strong.
* Household spending is up: Auto sales hit a record high last winter (Q4), furniture and appliance sales are up and all durable consumer spending is much stronger -- direct results of the tax cuts."

It doesn't take a course in Statistics 101 to know that numbers can be presented in many ways in order to make whatever case one wishes. Let's see if we can demonstrate them differently.

* Economists believe GDP has slowed considerably in the current quarter, with some projecting growth at a rate of just 2.5 percent or lower.
* Consumer spending increased at a 3.3 percent rate in the first quarter, down from 6.1 percent in the fourth quarter of 2001.
* Sales of U.S. existing homes fell 0.3 percent in May.
* Consumer confidence declined in June to a four-month low.

According to the Washington Post, June 28, 2002, "The employment picture is sluggish, the federal budget has returned to the red, and Congress must pass a law to borrow more money. The trade deficit is growing, the dollar is falling, and health care costs are rising."

If you follow Bush's logic and advice, we need to spend, spend, spend to keep the economy strong. But how can one create a strong economy by making individual economies weak? If we spend like that we can't save, and if we don't save we won't have a financial cushion, and if we don't have a financial cushion and things turn really sour, exactly who will bail us out? The US Government? According to the Washington Post, June 29, 2002, "the declines in stock prices have already had a direct impact on spending by upper-income households, and the declines have convinced many other households that achieving their retirement goals will require more savings out of current income." Thereby depressing the economy. Don't bet the farm on that 401-k, or the lock-boxed Social Security, or a government bailout if you declare personal bankruptcy.

Meantime, our administration is spending like there's no tomorrow.

It seems to follow that a president whose position is tied to his country's performance is more likely to stay in office when the country has done well. Yet, when bad policies, accounting and spending practices make the country appear to be more successful than it actually is, the president and his cabinet should loose their re-election and the phony profits gained at the expense of the citizens, and not be entitled to hold office -- political or corporate -- again.

But long after the full effects of present policies have revealed themselves, when Bush et al. are out of office, and we've spent like crazy and our meager savings have shrunk in comparison to inflation, on which company's Boards will Bush and Cheney be serving, and to what standard will they hold themselves and those companies?

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References and Resources

Dana Milbank, "In Growing Bad News, Risk for Bush and GOP," The Washington Post, Friday, June 28, 2002; Page A01

John M. Berry, "Personal Income Rises, Spending Down," The Washington Post, Saturday, June 29, 2002; Page E01

Visit the White House for more official perspective.

Visit The Economy.com Layoff Calculator to estimate the probability of losing your job in 2002.

Make your opinion known. Visit the Legislative Action Center, an excellent resource for contact information on elected officials, newspaper editors, etc.


Jan Baughman is a scientist in the Biotech Industry. When Jan does not travel around the world on behalf of the company where she manages a clinical research department, she spends most of her time devouring books like candies and relaxing over the preparation of the finest recipes in Northern California. She started writing at a very young age when she found this mode of expression easier than having to answer the perpetually boring and conservative chit-chat around her. Jan's sense of observation is directly related to her sense of humor. She is a founding member and co-editor of Swans, and brings to the site wit and a lightness of being.

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Published July 1, 2002
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