Money

I have what I have to have -- a good laptop and a multitalented celphone. Credit cards are great if you pay them off each month -- or you know you'll be able to pay everything off within a few months, barring wholly unexpected Black Swan-calibre disaster, not of your own making.

 

This really shouldn't be that controversial. Pay for things in this order:

1) Immediate survival: food, clothing, shelter
2) Short-term savings, i.e. an emergency fund
3) Long-term savings, i.e. retirement
4) Discretionary fun. Go nuts, do whatever you enjoy.

If you do it in that order, you are contributing to the economy's long-term health.

If you skip No. 3 for No. 4, then the economy gets a brief boost. But then you get to retirement and you don't have anything. Nobody's going to let you starve in the street. The money to pay for you to live has to be taxed or borrowed, and that is a drag on the economy. Thanks to inflation and interest, the drain is more than the boost from back when you were spending was.

 

For the record, I make in the 25-30k range and live in NYC and I'm able to live quite happily while also putting a small amount of money away each month. My college situation definitely made a difference as to why I can do this (no loans and being able to put away money while at school). I have a good amount of money saved up for someone my age and I'm still able to go out once or twice a week with friends and take my girlfriend out every once in a while for a nice dinner. I don't have cable, but I get by fine with Netflix.

I'd definitely like to have to ability to spend more when I go out, but by not doing so I'm able to have some money for small trips and concerts, which are my two main luxury expenses. I try to do a weekend trip every couple months or so to keep me from feeling like I can't travel anymore. I was in Philly over MLK weekend and I'll be in VT for some skiing with some friends this coming weekend since a close friend lives up there. Going places where I can stay with friends definitely helps.

Friends, music and traveling are the main things in life that bring me joy and I haven't had to sacrifice them despite not making that much.

Edit: I'm also well aware that if I was married or had a kid or had really any debt at all that this would not be sustainable. I mostly just wanted to point out that it is possible to live an okay life making that amount of money in NYC, but with the caveats of being single (willing to live with roommates) and not having debt.

 

And big business and rich people shouldn't have to make any sacrifices? For someone who has admitted to working fast food, you can be quite the Marie Antoinette. My point is that some rich and powerful folks meant to create an economy in which more products would be available to more people, and meant to hire some of the most creative people in society to drum up demand for such products. Whatever the wisdom of that, to just go cold turkey would be catastrophic. In the same way that the auto manufacturers and the banks could not be allowed to go under.

 

I guess we could repurpose electronics factories as mac and cheese plants, come to think of it.

 

Poetic.

 

Who said anything about them not making sacrifices? We have a massive debt that threatens to crush our economy, and taxing them is the only way to pay it off.

As far as middle-class spending, we're way past the point where we even have a choice if we go cold-turkey or not. The time to wean ourselves off of credit spending was the 1990s. The longer we try to keep things doing now, the more inevitably we entrench the current, awful state of the economy. We lived it up, and our comeuppance is both here and on the horizon. The only choice now is face the medicine immediately or put it off and make it worse tomorrow.

 

This really is as simple as 1+1=2.

When you borrow money for consumption spending, you must pay it back someday. With interest.

When you pay it back with interest, the economy loses the spending you could have done with the interest.

Propping up the economy today with credit-based spending is making the economy a little worse tomorrow. There is no free lunch.

So if you insist that we must have our electronics factories today, fine. You are correct that it makes today's economy better. But you are adding a dollar today and losing $1.10 in the future. And the problem with the future is that it eventually becomes the present. Why do we have 18 percent real unemployment today? Because we lived in the 1990s and early 2000s by borrowing from the future, and now that future is here.

The interest just keeps compounding. If you want to keep borrowing to prop things up, then the next decade will be even worse.

 

You have to account for the current vs. future value of money by some means, net present value for instance.

 

Yes, but nobody's loaning money out at below-inflation rates. If they are, then they are the ones losing and it creates a whole different batch of problems.

 

How can so many people making McDonald's wages be an expert on every Tech device ("My Droid Incredible can beat up your Palm Pre") and be experts on every concert, every restaurant and every vacation destination someone inquires about?

Something just doesn't add up. It can't all be done on credit cards.

 

In California there's this little qualified in any credit card statement, "if you pay the minimum due you will pay $......" That's our economy in a nutshell right now. Borrowing without the means to pay it off are going to be catastrophic unless spending pulls back or some miracle source of income arises (wildly unexpected stock gains/home equity gains).