12 May, 2008

(Not) Free Money!

My high school friends always complained that I was just a little too in touch with reality to have a good time.—Okay, that's not what they said. That's what I said.

What my friends said is that I was a "pessimist", or that I had a talent for killing team spirit. All this fuss just because I had a habit of pointing out that we could, in fact, lose a match, or that maybe I wasn't as good as all that, or that there could be negative consequences to a particular course of action.

You'd infer (correctly) that my friends (all two or three of 'em) were extremely patient, tolerant folks. Not like me. Did I mention that one was an atheist, the other an agnostic? To give you an idea of what they had to put up with, one of 'em wrote in my yearbook,

To John: the only person I know
with a brain the size of a watermelon
and the personality of a fish.
I still have the yearbook, if you don't believe me. You might wonder what a Christian fellow like me was doing hanging out with infidels who wrote things like that in my yearbook. Simple, really: decent Christian folk couldn't put up with me.*

Being a big party pooper and all, I've decided to remind my readers (all one or two of you) that
There ain't no such thing
as free money!!!
That includes this so-called stimulus check coming from the government. I've already explained why this isn't free before, so I won't bother rehashing all that babble.

Still, the emphasis on heading out to a retail store and spending this (Not) Free Money puzzles me. If I choose instead to retire debt with this (Not) Free Money, that money doesn't disappear from the economy; it goes somewhere. Primarily, it goes to the lender, who presumably has a lot of employees to pay. They will almost certainly go out and spend their bonuses. Even if the greedy capitalist pig who runs the corporation keeps money to build yet another mansion, that also stimulates the economy. Someone gets paid for building that mansion.

So imagine that we all decided to use our checks to pay off debts. How could that be a bad thing? Is it bad because we would eliminate so much consumer debt that credit companies would lower their interest rates? That would also stimulate the economy, which is presumably why the Federal Reserve lowered rates so dramatically earlier this year.**

What if I simply invested my (Not) Free Money in stock, or placed it in a savings account? The money invested then goes into very healthy sorts of spending on the supply side of the spectrum, doesn't it? That's what stock is about, after all: raising money for capital investments, hiring new employees, research and development, etc. etc. Indeed, if I put it into my 403(b) (that's like a 401(k), only for people stuck at not-for-profit institutions like most universities claim to be) TIAA-CREF would invest it somewhere, probably more intelligently than I could, would earn interest, and put that back into my account. If my investment averaged only 8% interest a year in the market, that paltry sum would have grown to ten times the amount I started with once I decided to retire.

For years and decades even, scads of know-it-alls have been nagging us Americans on Business and Op-Ed pages of the newspaper that we aren't saving enough money, but are spending too much on frivolous things. Recently these scolds were hysterical about how the savings rate for the country had gone negative and what this meant.*** I think they're still going on about it, in fact.

This set people all atwitter with questions like, "How can we fix this?" Well, here we are with this (Not) Free Money, and instead of being advised to save it for The Coming Financial Apocalypse, I'm told that if I don't go out and buy a home theater system with it I am contributing to the Red Dawn or something.

Dad burn it, now I've lost my train of thought and meandered somewhere pointless. I suspect that I have as much substance at the moment as a creamy meringue. End of entry.

*I'm serious about decent Christian folk not being able to put up with me. I'll skip the details.

** This is where I point out that one of my credit card companies recently sent me a letter telling me that they've decided to raise my interest rate to 25%. This, despite the fact that the Fed's lower rates mean that they could lower their rates and still make money, I pay my bills on time, carry no credit card debt, and in fact haven't used that card in about two and a half years. I'd quite forgotten about the card's existence until I received this letter. Yes, I will opt out, thank you.

***In what is probably the finest moment of not listening to a know-it-all since the Trojans laughed at Cassandra, certain economists of the eternally sunny variety (seconded by some very loud would-be economists) argued that the negative savings rate was erased by the equity that Americans had in their houses. One wonders what they think now that the housing market has collapsed.

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