Saturday, July 24, 2021

A Few Thoughts On The Return of Thrift

 Back in the mid 1990's I bought an economics book for myself - something completely out of character with my reading habits then:  The Return of Thrift:  How The Collapse Of the Middle Class Welfare State Will Reawaken Values In America by Phillip Longman. I cannot recall why the book called out to me; looking at the inside of the cover, I see it was $25.00 back then (not really very thrifty of me, come to think of it).

A short synopsis (it has been a while since I read it) was that per the author, America (then) had a middle class welfare problem.  Through government programs like Social Security, Medicare/Medicaid, Pension Bailouts, subsidized Federal home loans, and hefty retirement plans for high level military and bureaucrats (Not the enlisted, of course:  My Father In Law The Master Sergeant did his 20 years and I can assure you his retirement pay is somewhat embarrassing), the country was enabling the spending of money far more rapidly than it was being taken in and was enabling the subsidization of middle class consumption, not the building of the middle class.  Worse, it was enervating the old middle class values of thrift, frugality, and sturdiness.

Long's prescription fell into two categories.

For the Government, the task started with passing a balanced budget amendment (which, in all fairness in the intervening 26 years, they have not really held to).  A means test would be applied to levels of income exceeding $40,000 (again remember, 1996) for retirement benefits and all other benefits. Additionally, health care subsidies would need to be ended except for the very poor as well as Medicare/Medicaid premiums and deductibles increased and possibly taxed and HMOs (still kind of a new thing back then encouraged. Finally, some kind of health care reform would have to happen, although he leaves the details rather vague.  And or course, higher taxes (that was coming anyway).

For the individual, Long states the following:  "The implications of this book for your own finances by now should be clear.  You can go on living your life as if you could count on Social Security, Medicare, or other middle-class entitlements.  But the younger you are, the more foolhardy you are to risk your future on such a dubious assumption."  The only thing one can do is be responsible for one's own retirement is his response - and his charts give one the idea of how much that would actually be (he assumes an average return rate of 3% a year, which is pretty conservative and not bad, in my opinion, as a worst case scenario).  He also suggests that such a thing as Mandatory Savings Account (MSA) be established on a sliding scale for government where the individual is required to put a certain amount of their money aside in an account for retirement, separate from an IRA, and managed by the individual (to be fair, this seems to be one of the main points of Long, something he touts a bit in terms of his idea).

What the middle class needs, suggest Long, is rediscovering what built the middle class:

"Middle class culture still celebrates play and time off, when a renewed commitment to work is required to pay off our personal and national debts. Middle-class culture still glorifies "self-actualization" and self-absorption, when economic necessity requires greater reliance on extended families to provide for the very young, the very old, the sick, and the unemployed.  Middle-class culture, in short, is becoming less and less distinguished from proletarian culture in its shortsightedness and self-indulgence at a time when, due to changing economic reality, it should be becoming more asserrtively entrepreneurial, family centered, and bourgeois.  

Those who don't wake up to the new reality will soon enough become proles."

Ultimately what Long promotes is the idea of thrift - self chosen or enforced - instead of what he perceives a middle class entitlement.

I present this not as a philosophy I agree with, but as a view of what 20 + years ago was a thought on how to avoid the significant increase of the national debt.  Because I think it is fair to say that, like his ideas or not, in point of fact nothing was done about it, leading us to the staggering national debt we are under today.

10 comments:

  1. They were better times, and we were better people.

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    1. Glen, what a perceptive comment. I suspect Long was in a lot of ways someone that held a different political and economic view from you and I, but never does he speak in the terms of what has become the common parlance of "You are idiots". He speaks toughly of what needs to be done, but no more toughly than a doctor telling us we need to do something to better care for our health.

      I had not thought of that book until last night, although it has been staring me in the face since I read it. How far we have fallen.

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    2. Yes. Those of us who are older are swimming upstream teaching our children and grandchildren, but that doesn't change its importance.

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    3. Caryn - Wiser heads than me have commented then a very short period of time, the concept that those who are older might have something to teach the younger has completely disappeared. We now live in the era of the older having nothing useful to contribute but only to listen. It is quite a change, and a rather glaring indication of hubris.

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    4. Used to be, the older folks held things together until the younger ones caught on. Then they stood behind the younger ones and helped wherever they could. Seems that now, many of those who would normally be helping the younger ones have been wooed over to the opposing side... I'm talking from experience here...

      Caryn, my wife and I spent our entire adult lives "swimming upstream." It was like shoveling sand against a tsunami...

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    5. Pete, I do not wonder if the wooing is partially due to the fact that in their lifetimes, there has never been a defining event - say WWI or WWII for example, something they feel like they could be part of something bigger and more grand. What, apparently, may not be as important, just that they can be a part of it.

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  2. "Middle class culture still celebrates play and time off, when a renewed commitment to work is required to pay off our personal and national debts." That is something I don't do. That being said, I work to live. I don't live to work. That author aimed at the tip of the flame instead of the base of it with his solution. If the solution is to have the middle class work more to pay down the debt, the politicians are free to run the debt up even more, with the solution being "Work harder, middle class!" It's the same with the cost of healthcare. The problem isn't that not everyone is insured. The problem is the cost of healthcare. The "Obamacare" solution is not only for the middle class to pay higher premiums so that Healthcare Inc can keep charging what they want, but for the middle class to also pay for those who can't afford insurance. That mechanism is already collapsing under the weight of Medicare and Medicaid, and yet people are screaming to add more weight to that structure!

    Thrift has always revolved around the simple equation of running out of month before running out of money. Judging from the lines at Scarbuck's, a lot of people are going to get blindsided by the next ...correction...

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    1. Pete - Fair to say that Long in his review and solutions (so far as I remember) does not say a whisper about overall control of government spending (I may have re-read the book just to recall) and in that sense yes, there is no check on government continuing to throw on spending and resolve the issue by raising taxes and cutting everything else (which is what we seem to be actually doing). That said, I think he does have a point in for many people, enjoyment and leisure has become the main focus of their lives (observer your aforementioned Starbucks' comment) with the assumption that someone from the government will take care of them.

      My suspicion runs with yours - we are all about to become a lot more thrifty by none of our own doing. Better to prepare now.

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  3. My family is living this currently. I have always had a "peasant" mentality--save, live within your means, and keep an eye on the incoming weather. Before COVID, my husband was still working at the job we had both held for over thirty years (I had moved to self-employment a few years before that) as a paramedic. We bit the bullet, left the job in March, sold the house, left New York, and moved in with our daughter, son-in-law, and newborn grandchild so that they could continue to work remotely (they work for NASA) and have family around for the baby.TB, you are doing the mult-generation thing, too, as are so many (my mom lives with my sister). None of these decisions are easy, giving up independence is hard for everyone, but I think a return to this may be crucial if we have any hope of saving our society.

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    1. Caryn - In reality, this was the way most of the world worked most of the time. Only in the last 100-150 years has this become the not-norm. It works if, as you suggest, everyone is independently able to support themselves. We are already on the cusp of this no longer being a possibility for many, perhaps soon for most.

      I wonder about my own children, as they are graduated or moving through school. A lot of it has to do with what one chooses as a career and where one chooses to be.

      But just the fact of inflation may end up changing a lot of minds - let alone an actual financial collapse.

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