– November 28, 2019
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With Black Friday upon us, here’s something important to remember: you’re not “helping the economy” by spending intemperately and making imprudent impulse purchases. You’re just… spending intemperately and being imprudent. There’s nothing inherently wrong with that. Maybe you have a very high time preference such that you want stuff now now now and are willing to sacrifice future consumption for it, or maybe it’s part of an occasional and considered splurge a few times a year. 

You shouldn’t excuse yourself or think there’s a silver lining in extra consumption, because you’re not “helping” the economy more than if you simply saved the money (where it could be lent to people who are expanding our productive capacity) or stuffed it in a mattress (where its removal from circulation would reduce prices).

It’s hard to appreciate if you only account for what you see during the holiday season. I took my oldest child to Walmart near the end of the day on Thanksgiving last year mostly just to see what it was like. I hadn’t really been Black Friday shopping since working at a music store in high school, but this was a lot of fun. We weren’t there for anything (we bought oranges, if I remember correctly). We were just there to observe. And observe we did, joyfully and peacefully (and pleasantly surprised by gratis cookies and coffee). There weren’t any brawls that would end up on YouTube. For the most part, things were extremely orderly. The salespeople were in good spirits, and they had roped off a path through the store with a map to where all the hottest items were. Everyone seemed happy.

In this light, it seems hard to believe that indulgent spending doesn’t stimulate the economy. What about the paradox of thrift, which says that if we all save more (individually rational), the reduction in spending will lead to lower overall output and employment (socially irrational)? It’s true that a sudden increase in saving will cause a reorganization of the economy, but as Friedrich Hayek argued in his criticism of the Keynesian framework in which the paradox of thrift plays a central role, “Mr. Keynes’s aggregates conceal the most fundamental mechanisms of change.” 

Or, as I’ve heard Peter J. Boettke put it, most (highly aggregated) macroeconomics is an effort to do economics without prices. Prices change, though. While a derived-demand effect dominates for the Walmarts and Targets of the world, an interest rate effect dominates for firms (like mining concerns) with operations that are well removed from final consumption.

In his 1994 book Ethics and Economic Progress, James M. Buchanan explores the “ethical content” of “puritan virtues” like the work ethic and the saving ethic (Greg Caskey, Zachary Kessler, and I explore Buchanan’s work and its implication for business ethics in this paper). Buchanan argues that, in a world where productivity is determined by an ever-finer division of labor, we are all better off by our own standards when we work more and save more. Hence, he argues, we developed (albeit unintentionally) ethics of hard work and saving that have helped us capture at least some of these gains. 

By Buchanan’s logic, it is prudent to refrain from impulsive and imprudent consumption not because material riches are not the same as moral riches (while this is true, Buchanan’s focus is more narrow) but because by our own standards for private consumption, we get higher standards of living if we all save more. The collective action problem is, of course, enormous. However, the development of a strong ethic of work and saving helps us capture at least some of the gains.

Here, then, is what you should think about as you celebrate Thanksgiving and get ready to go Black Friday shopping: you aren’t necessarily stimulating the economy or making anyone better off with that impulse purchase. Don’t feel bad for refraining from that purchase, and, importantly, don’t try to justify your impulse purchase with a story about how you’re taking one for the team and stimulating the economy. 

Of course, if you want that bauble, buy it. Do so boldly and unapologetically, because you and your preferences matter, too. Know this, though: if you decide to refrain and save the money, your newfound puritan prudence will, in the long run, benefit everyone else through higher economic growth. 


If you want to understand the relationship between saving and standards of living, these videos on the Solow growth model are a good place to start.

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Art Carden

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Art Carden is a Senior Fellow at the American Institute for Economic Research. He is also an Associate Professor of Economics at Samford University in Birmingham, Alabama.
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