Spending Your Way to Oblivion

Fortune.com has a column up called “We’re a Nation Helpless to Save Ourselves” railing against America’s rampant consumerism, which author Geoffrey Colvin claims is leading us to ever higher levels of personal debt, which in turn will bring about crushing collapse when it all finally catches up with us.

I agree with some points — many Americans gleefully exceed their financial reach, either by buying lots of gadgets, purchasing a too-expensive house, or generally just spending more than they earn. But to blame this exclusively — or even primarily on “hyper consumerism”, misses the mark. The author discusses tries to tie the end of savings to the rise of consumerism in the 1920s, but I can think of another major change that arose during that era, which I’ll argue had as much, if not more, of an impact: the concept of the “Four Freedoms”, and the resulting stratospheric rise of government entitlement programs, primarily Social Security, the various public health programs (Medicaid, Medicare) and state and federal welfare initiatives. With these programs, the government — and society — effectively said “hey, it doesn’t matter if you screw up, if you don’t save, and if you generally make a mess of your life, we’ll be here to catch you.”

Why save when you know Uncle Sam’s got your back?

The truth of this becomes all too clear when you realize just how many people are counting on Social Security as their only (or at least primary) form of retirement savings. I personally find that astounding — I’m certainly not counting on the government to cover my golden years — but then again, it’s hard to blame these folks for expecting cradle-to-grave support from the government, since that’s what they were promise. Or what they think they were promised.

Worse yet, to finance this hodgepodge of handouts, the government attempts to get tax every cent you make, and if it can swing it, it’ll even tax it multiple times. At every turn, savings are discouraged, and even when the government tries to encourage specific kinds of savings — i.e. IRAs — the tax code shifts so frequently that its very possible you’ll find yourself paying taxes on what you’d thought would be tax free.

Citizens are penalized at every turn for making money — especially lots of money — while they are rewarded for debts (i.e. tax credits for mortgages, child tax deductions, etc.). Is it any surprise then, that these public policy twins would wreck such havoc on personal savings?

I’m not arguing that consumerism does not play a part — there are plenty of people who spend more than they should, and don’t realize (or ignore) the consequences of such deficit spending. But then again, doing the prudent thing — building a nest egg, living with in your means — is just going to bite them in the ass in the end, when the government loots their savings to pay for all those rabid grasshoppers who happily gorged themselves on their non-existent free lunch.

If you really want people to save more and spend less, then you need to give people ownership over their own lives and their own property, something that has been sorely lacking in this country of late. You need to change the tax code to encourage savings, not just for the little folks, but the not-so-little and even big people to, and you need to make sure that you don’t turn around and tax them into oblivion when they finally decide to spend those savings.

Unfortunately, the political will to do this seems to be lacking, particularly among Democrats, many of whom start hyperventilating hysterically when the mere possibility of letting people hold on to a portion of the money they send to Washington’s Social Security black hole, but I am glad to see that Bush was able to at least propose privatization.