A new study has discovered that one-third of U.S. workers are unable to keep their heads above water between paydays. The findings were not only confined to poor and working-class individuals: 32% of workers earning $200,000 per year admitted that they “always” or “most of the time” run out of cash before their next paycheck.
These types of surveys are no longer surprising: a quick Google search will yield hundreds of studies revealing comparable results that make you wonder if the economy is not doing as well as most people think or if people are just terrible at managing a budget. While there are fault lines in the economy and many households need to do a better job of taking care of their dollars and cents, the real problems are how much the nation is taxed and our infatuation with consumption over saving.
Down to Brass Tax
It can be difficult to pinpoint how much the average American is paying in taxes. Today, income tax brackets range between 10% and 37%. But then you start to factor in sales levies, property taxes, unemployment insurance, Social Security, and the myriad of egregious nibbling throughout states and cities. You could make the case that Americans are forking over about 40% of their earnings when you calculate all the nickels and dimes tossed into the mouth of the hungry Leviathan.
Families maintain a plethora of obligations, from covering the children’s cello lessons to making car payments. Whether it is handing over 8% after every transaction or paying an annual property tax bill of $3,000, giving the government a share of your money hurts. One could almost say it is like local businesses being forced to pay the mafia for protection.
Progressives contend that taxes are what we pay for a civilized society. It is safe to say most Americans would be fine with paying a flat tax of 10% to 15%, but it is the little things that add up over time. A 33-cent vending machine fruit tax in California, a 2.3% coffee cup lid penalty in Colorado, a $35 permit to stargaze at a New York State public park, or a levy on the air in Pennsylvania – it is all ridiculous.
Do You Have the Time?
Two-thirds of the U.S. economy is consumption-based, meaning that the country needs to spend to maintain its standing in the world. While this is an uncomfortable way to grow an economy, it would not be such a bad thing if it were based on savings and investments. Instead, it is funded by red ink.
Recently, Liberty Nation reported on a Bloomberg study that discovered if borrowing were somehow outlawed, America’s gross domestic product would crater to negative territory. The conclusion was that economic growth is due to debt-fueled consumption rather than based on the money you tucked away in your piggy bank for a rainy day. You might be tapping, inserting, and swiping too much.
Everyone has their own time preference. Ben Richards may place a relative value on receiving a good in the present, while John Matrix may find value in consuming a good or service at a later date. The decision to delay gratification is fundamental to the economy. While the Keynesian would say this is a form of hoarding and detrimental to growth, the reality is that postponing present-day consumption allows you to consume more in the future. Capitalists can then invest this pool of savings to create even more goods and services that can be purchased at a future time.
As an aside, it should be noted that Austrian Theory proffers that consumers prefer satisfaction sooner rather than later. According to eminent economist Eugen von Böhm-Bawerk, the longer the purchase is postponed, the less satisfaction you will have when you pull the trigger on an acquisition. He also stated that most people would underestimate their future requirements because of imprudence and negligence.
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On a micro level, savings can serve as a means of transferring consumption to later periods to maximize lifetime utility. By choosing to save 25% of your paycheck, you are setting aside funds to buy a collection of Raymond Chandler novels, which would be easier on your wallet than using a credit card and risk paying interest on your transaction. But would you be any happier if you bought The Big Sleep or The Lady in the Lake today or tomorrow? That is the $64,000 question that will produce debate among behavioral economists.
So, does this mean that both debt and consumption are odious mechanisms perpetrated by those evil bankers? Not quite.
Like consumption, debt is not an inherent iniquity in the market economy. A reasonable amount of borrowing now can produce dividends in the future, whether it is on a college education or a property. Considering their costs, imagine if you saved your whole life to pay for tuition or a house – you would waste 30 years. Unfortunately, too many people are relying on debt to pay the rent, put food on the table, or feed the automobile a gallon of gasoline. No one will argue the fact that life happens (job loss, sickness, or death in the family), but a lot of people do not have this excuse.
A Hallmark Moment
When you spend beyond your means, you are destined to live beneath your means. This philosophy applies to both the individual and the state. Sure, shoppers go overboard at Christmas, waste their incomes on Hallmark holidays, and disrespect their hard-earned dollars on debt-servicing payments. At the same time, it can be hard to fault a lot of these folks, considering that they are the victims of theft by the state with not a lot to show for it, aside from a hefty tax bill in the spring. Plus, there is the vilest punishment of them all that is concealed from the public: The inflation tax. Fiscally responsible figures may scoff at others’ wasteful ways, but it is hard to blame them when the government picks the pockets of millions of Americans every day.
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