CINCINNATI (Reuters) - After the September 11 attacks, President George W. Bush urged Americans to go shopping. As he hands out $789 billion in economic stimulus, President Barack Obama has been less clear — and Americans simply don’t know whether they should save or spend.
“It’s a tough question,” said Cincinnati electrician and small businessman Mike Cavanaugh. “I think that in general the government wants us to spend. While saving may be better in the long run, spending I think can be contagious because we see each other doing it.”
In Scottsdale, Arizona, business owner Bill Austin said the government’s message has been mixed.
“The government doesn’t know what’s going to fix this, but I think they believe that people should start spending again,” Austin said. But he’s skeptical: “Just me going out and spending money isn’t going to fix this.”
After a year of being castigated for the consumerism that drove the nation’s boom-and-bust housing market, Americans can be forgiven for not quite knowing whether they are doing the smart thing by spending or saving.
Obama, at his first news conference as president on Monday, dodged the question, arguing that consumers, like the government itself, need to do both.
“Our immediate job is to stop the downward spiral,” Obama said, suggesting that spending was the answer. But he warned that thrift would be needed soon after.
“Once the economy stabilizes and people are less fearful, then I do think that we’re going to have to start thinking about, how do we operate more prudently?” Obama said.
At the Consumer Federation of America, where economists expend great effort trying to teach Americans to spend wisely and save well, executive director Stephen Brobeck laments the suggestion that Americans have a duty to spend the nation out of recession, and only later tighten their belts.
“We would prefer that our government leaders communicate a more nuanced message which distinguishes between economically insecure and economically secure families,” Brobeck said.
People with lots of debt and no emergency savings should be working harder than ever to pay off their liabilities and save for an emergency fund, he said. But luckier Americans can do their part to throw a little fuel on the fire.
“It is in the country’s interest for those households with discretionary income and job security to keep spending at past levels,” Brobeck said.
For many Americans, the stimulus will come in the form of a fatter paycheck, as withholding taxes are cut. Others will be hired for infrastructure projects approved under the plan.
But while Washington may be hoping the stimulus will send shoppers back to the stores, convincing Americans it is wise to spend again may be an uphill battle. Magazines are full of tips for saving money, companies have cut back on advertising, and no one hesitates to boast about their frugal ways.
“I watch my money closer now, as does my wife. I cut out the morning iced coffee at McDonald’s, even though it was not that expensive,” said Cincinnati’s Cavanaugh, adding that he was being just as cautious with his business.
“I am doing the responsible thing and cutting back.”
Kevin Hassett, an economist at the conservative American Enterprise Institute, said it may not matter what message the government is trying to send — since people react predictably when the government gives them extra money.
“You can break the response down into two types. A little less than 40 percent take the money and consume it right away,” Hassett said. “The rest of the people, a little more than half of Americans, don’t really change their behavior much at all.”
And while negotiations about the economic stimulus have been front-page news for weeks, polls show a dramatic cutback in U.S. consumer spending and lack of confidence about future finances, even if money is poised to pour into the system.
A poll released on Thursday showed 86 percent of Americans have cut spending or changed their saving or investment pattern, though just 30 percent say the thrift was driven by actual financial hardship. The rest, 56 percent, cut back because they worry their financial situation may get worse in the future, according to the national survey by the Pew Research Center for the People & the Press.
Hassett said people are wise to be cautious, since individual tax bills will inevitably rise once the economy has recovered and Obama and Congress have to claw back money to tackle the gaping federal deficit.
“So the right answer is to save, but that’s bad for the economy,” Hassett said. “Clearly what’s good for the individual isn’t necessarily the thing that is going to give us the best GDP number this year.”
Additional reporting by Tim Gaynor in Phoenix, Caren Bohan in Washington, Carey Gillam in Kansas City and Ed Stoddard in Dallas; Editing by Eric Beech