Waxing philosophical

Something has been bothering me and I haven’t been able to crystallize what it is. I’ve known for a long time that the U.S. economy is based on capitalism. In other words, consumer spending is what keeps the U.S. going. If something happens that makes consumers stop shopping, like a pack of bad loans or a terrorist attack, we may run into a recession. Today congress passed an economic stimulus package of 1.5 Billion dollars. Most of that will come in the form of tax breaks for big business, but another chunk boils down to giving free money, $1200 for couples and $600 for individuals, to the people and telling them to go shopping. Go buy a LCD TV for the sake of your country.

I am not smart enough to think this through to any logical conclusion, but it doesn’t seem like it’s possible to sustain this model indefinitely. At a minimum, one of two things if not both need to occur for continued growth of the U.S. economy. First, people have to start spending more of their total income. I don’t know how this one works. It seems like people have already surpassed what should be a spending maximum. I don’t know how many people I hear about who spend will beyond their disposable income and run up huge credit card debts. The mortgage crisis is another example. People thought the housing boom would last forever so they bought way more house then they could afford and foreclosures now show a double digit increse.

The second option is to make sure we have a rapidly growing population adding to the work force resulting in more people out there shopping. I don’t have any numbers to back it up, but I though the U.S. and most western nation’s populations were declining? A lot of younger generations are holding off longer and longer on marriage and having children later in life. This combined with the aging baby boomers would significantly reduce the number of spenders we’ve got.

Up until I bought the boat and started the refit I’ve never been a big spender. I used to read financial planning books like we were about to loose them all. I even pass them out to friends of mine because the issue of personal finance is an important one to me. No one has found a better system than capitalism, but shouldn't we be looking pretty closely at it? The politicians argued for awhile about whom to give the rebates to because they didn’t feel those above a certain income level would pour the money back into the economy. People who tend to be financially savvy save, not spend. It’s the bunch in the rat race that the money is mostly targeted to. These are the people that drive the economy. They can’t get ahead because they buy cheap consumer goods that break in a year or less leaving them no better off had they not had the money at all. Those considered wealthy buy things that make money. They spend it, but they spend it on things that show a return on the money like property and businesses that feed the consumer market. Their money earns interest, they don't pay it.

Something seems wrong to when the best thing we can do with 1.5 Billion is to give Johnny Suburb a check for $600 and send him off to get an iPhone. Here is the message from my soapbox. If you haven’t already started really securing your financial independence and need help understanding how, go get a book called The Wealthy Barber. It’s an easy read with 10 things you can do today to get your finances in order.

Oh wait, this is a sailing blog. Ok, I read the above mentioned book about six years ago and now I am about to go cruising at 31. It wouldn’t be happening if I hadn’t learned early on how to manage my money. I think this is a skill common to a lot of sailors I’ve spoken to.