Always spend wisely ….

This post comes to us from Mark Hannam, honorary Research Fellow at the Institute of Philosophy at the University of London.

European governments face a problem.  They have borrowed to finance fiscal deficits during the recession and now they must repay their debts.  Taxes will rise and public spending will fall.  None of this is popular with voters, but it must be done.

In this era of austerity there is much talk about “doing  more with less”.  This is a worthy goal: who would be in favour of doing less with more?  But the rhetoric of public spending cuts disguises an important distinction between the level of spending and the quality of spending.

For economists “savings” are the excess of income over consumption, or deferred consumption.  We save now so we can consume later.  The balance between current consumption and future consumption depends upon our circumstances: in times of plenty it is prudent to save, in times of shortage in makes sense to consume.  It was ever so.

The idea that we should try to “get more for our money” is somewhat different; it suggests that we spend wisely, ensuring that we do not overpay for products and services.  It is hard to argue against the idea that we should optimise the value we secure for each pound, euro or dollar spent.

So, two rather different ideas: one proposes that we consider the balance between present consumption versus future consumption, the other proposes that we should always spend wisely, making the best of the resources we have.

Governments should always spend wisely, but today they have much less to spend.  As we enter several lean years of public spending we can be sure the politicians will tell us that they are doing more with less.  Very good.  But when the fat years come back, we should continue to insist that we get good value for our money.

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3 comments to “Always spend wisely ….”

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  1. zafer oter - 14/05/2010 Reply

    spend less while consuming more, save always during lean or fat times, consume and spend less together if you can. Good value for money is relative; value is also about frequency of usage, responsiveness to the need, and adaptation to the temporal conditions.

  2. Baye Kambui - 17/05/2010 Reply

    For right or wrong reasons, the favored bet for creating wealth among the most developed economies has been to shift away from production and focus more on the multiplication of bets that are based on debt. A more direct way of stating the point is that the economies have been powered over the years by relying on households living beyond their means. The debt generated by this consumption has made a few people extremely wealthy while increasing numbers of people were saddled with rising debt that was disguised as affluence.

    This trend has offered deceiving signs to policymakers that national economies were built on solid ground. Building financial empires from debt these days will be harder since many people and governments do not have ability to take on much more debt. The economy will continue to suffer since less people are engaged in the creation of wealth or a tax base.

    The way out of this mess is not simple, and will require governments to make bold choices with respect to how wealth generation should work.

    Side note — I find it interesting that countries like Greece are being told to consume less — and let’s understand that decreased consumption for any family living near the poverty line can be deadly — while the banks maintain the position that they should be paid in full for the debts underwritten for Greece. I wonder how long that position will be maintained…

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