At this time of year we get lots of messages, in the news and elsewhere, on the theme of economic prosperity Some focus on charity and assistance for people in unfortunate circumstances. Others look to the health of the overall economy, relying on the theories of at least one dead economist whose ideas, quite frankly, should be long gone as well. The Keynesian (à la John Maynard Keynes) prescription for a robust economy was simply “Spend!” Keynes prescribed lots of spending, spending by anyone, spending on anything at all. The objective was to pump up short-run consumer demand without regard to long-run saving, investment, or economic growth. “In the long run,” Keynes famously remarked “we are all dead.”
Like a nasty Christmas ghost, this spending spirit returns in some form every year. CBSNews.com posted a report on November 3, 2004 titled, “Spending Boosts Economy,” and a November 13, 2004 Wall Street Journal article stated “Schroeder Urges Germans to Spend to Perk Up Lagging Economy.”
We often forget why, at year’s-end, the economy has done well or poorly. It’s not because Christmas spending is strong or weak, though holiday sales can reflect important underlying conditions in the economy. If Christmas shoppers have money to spend in the first place, it’s because businesses are generating enough profit throughout the year to employ them year-round. A huge increase in credit-based spending at Christmas, by contrast, helps the retailer’s bottom line but doesn’t bode well for unemployed bill-payers later.
Long-run, economy-wide prosperity requires saving, investment, and success in the dogged pursuit of profit. These allow for the creation of more jobs, and spread the growing prosperity throughout the economy.
Rather than offering a spend, spend, spend message at Christmas, analysts might note a background theme in Dickens’ A Christmas Carol. Dickens means to tell a story about the horrors of urban poverty in the early industrial age, and the social responsibility that those better off must assume as generous, compassionate humanitarians. But he tells another story as well. That story is the story of the good steward in business, practicing thrift and restraint, giving value for value, and expecting others to live up their bargains. The profit earned through frugal practice allows the entrepreneur to become an employer, creating an unintended benefit for others. The Dickens character that does this, of course, is Ebeneezer Scrooge.
Scrooge may have been bankrupt in terms of his social obligations, but Dickens’ Christmas ghosts didn’t bother trying to transform the soul of an indigent beggar with no wealth to distribute to the poor. The spirits chose Scrooge, a man of hard habits and hard-earned profit, for their humanitarian metamorphosis. Scrooge, it seems, is a saver rather than a spender, the sure sign of a “Bah! Humbug!” personality during the holiday season.
As Dickens shows, even the meanest of men can unintentionally do the economy a lot of good. Scrooge used his business sense to create the means by which he could afford to employ Bob Cratchit. And if Cratchit is underpaid, he is at least employed, and his family marginally fed. The Cratchit family might well be worse off were Scrooge more profligate. Dickens makes it very clear that one doesn’t want to be unemployed in London.
The profit motive that Dickens painted as so inhuman in Scrooge is the same motive that drives prosperity in the present-day economy. And modern-day talk radio host Clark Howard recently joined Scrooge in his holiday advice. Howard urges shoppers to spend conservatively and save more, even during the holiday season. There’s nothing Bah! Humbug! about saving. Saving is the real vehicle for economic prosperity, production and employment—a better measure of economic health than one-time charity or a once-a-year Christmas spending spree.