EDITORIAL: Your 2006 Spending/Saving Plans
There are about 23,000 of you that receive Industrial Heating every month, and roughly 150 of you volunteered to tell us your spending plans for 2006. Extrapolating from these responses, the industrial heating market will spend nearly $7.5 billion for equipment, components, and supplies in 2006.
You people are BIG SPENDERS!
Conventional economic wisdom praises your free-handing of money as one of the most effective ways of stimulating the economy. The more you spend, the more the wheels of industry turn. Don't save - spend, spend, spend! - so they say.
If you're one of Industrial Heating's many subscribers who plan on making a major purchase in 2006, you may want to consider the virtues of saving. Not saving your money - please go ahead and spend - but the benefit of saving on the economy.
Saving has received a bad wrap since John Maynard Keynes convinced the world that spending was the only way to get the United States out of the Great Depression. Keynes' "demand-side" economics was institutionalized, and our current national economic policy is still based on the notion that savings is detrimental and spending is good.
"Not so," says more and more economists. In fact, saving money is virtuous.
Why is that? It's simple. One of the main drivers for industrial expansion is the cost of money, otherwise known as the interest rate. You are more likely to buy a new aluminum melting furnace or retrofit your existing car-bottom furnace if you can borrow money cheaply. The higher the interest rate, the less likely you are to embark on the project. Multiply your decision by thousands, and you can understand the effect of a slight move in interest rate.
Lower interest rates are good for industrial expansion.
So how do interest rates get low? Eliminating all the artificial controls currently exercised by our central bank (a la Mr. Greenspan et al), interest rates will fall as more money becomes available to be borrowed. More money becomes available for borrowing as more money is saved. Increased savings therefore helps to push interest rates down.
George Bailey (Jimmy Stewart) in It's A Wonderful Life explained it to his depositors when they came asking for their money. He told them (paraphrased), "You don't understand. Your money is not here in the bank. Your money is in his house. Any of your money is in his house."
That's the way free-market money works. Your savings helps fuel the wheels of industry, commerce, and home buying.
So much for feeling guilty about saving! Your company and you personally are the beneficiary of saving. The more we save, the easier it is for others to borrow money and expand and drive the economy.
Spend if you must (and please do, especially with the companies you see in this magazine), but feel no guilt about saving either.