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The Most Important Post You Will See All Year

For some readers, this Megan McArdle post at The Atlantic is the most important thing you will read all year.  Her subject is savings, and why you need to save much more than you are currently socking away.

Most older readers haven’t saved enough; most younger readers will need to save more (as government retirement programs hit the wall and unavoidable cuts must be made).  McArdle shows you how much you need to save and, more importantly, helps you figure out how it is done.  Warning: she also dismantles some common excuses for not saving.

The blue social model is a consumption model.  Government debt and private householder debt are the keys to making the blue system work.  From the thirty year mortgage to the student loan to the ubiquitous credit card, the blue social model aimed to facilitate and promote consumer debt.

That needs to change.  We have overextended ourselves as a nation and as families and individuals, and we need to get back to sane and sustainable patterns of spending and consumption.  We need to define ourselves less as a people and as individuals by what and how we consume, and derive our identity and self confidence from what we produce and invest.

McArdle offers some important advice on how you can begin, whatever your age, to begin to embrace the values of thrift and prudence we are all going to need as time goes by.

Read the whole thing.

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  • Kenny

    Exactly right, Mr. mead — save, save, save.

    Funny how this contradicts the Democratic agenda of spending the country to prosperity. What fools, these liberals be.

  • vbounded

    Careful getting investment ideas from McArdle. She is what I call trailing edge conventional wisdom.

    I.e., she comes to an investment idea closer to the fool than the wise man.

  • silverfiddle

    Taxes, low interest rates and inflation all conspire to erode our savings, like termites at a foundation.

    If I were a conspiracy theorist I would think someone set it up that way on purpose to drive our money into real estate and the stock market, and to make it more rewarding to spend than to save…

  • Walter Sobchak


  • Anthony

    WRM, Megan McArdle’s advise is both timely and appropriate. Permit me to add, in many ways the market and its institutions do not exist to serve the public (consumer); the public (consumer) exists to serve the market, to facilitate its operation. Consequently, an informed public (consumer) must reflexively “pay themselves first” – these investments will suffice during capitalism’s periodic malfunctionings and slumps (all deeply rooted in system). To that end, value of thrift and prudence rewards itself.

  • David Taylor, MD

    The values of thrift and prudence are certainly worth cultivating, and late is better than never. We baby boomers are quickly finding that our pensions are inadequate, social security is precarious, and our children are not inclined to make up the difference…

    But I was brought up short by the inclusion of the “ubiquitous credit card” in the blue social model. Is that true, historically? In view of the vast profits made by the banks that issue this kind of plastic credit, I would have thought that the expansion of credit cards was a corporate strategy for making money, not a liberal expansion of buying opportunity. Just wondering.

    • Walter Russell Mead

      @David Taylor: the two are not unconnected. The blue model is not, despite the rhetoric, anti-corporate. The idea was to harness the profit motive to a social agenda and, among other things, make credit available to the masses.

  • David Taylor, MD

    Prof. Mead: I’ll take your word for it, but my understanding of the ‘blue social model’ is that its major characteristic is direct government assistance to individuals, whether welfare (SSI, food stamps, etc), Social Security, Medicaid, Medicare, etc. Corporate support for and encouragement of consumer spending doesn’t seem to fit this distinctly blue model, especially if – in the specific context of the need for personal investment against the future – virtually any frivolous use of income is essentially equivalent to credit card debt. Monthly cable TV and smart phone charges direct income away from investment and savings as effectively as credit card debt.

    Many of us more conservative voters regard the blue social model as incompatible with free market capitalism, yet the capitalist model requires constant expansion of production and consumption. As I dip into the brief history of credit cards, it seems clear that this invention was all about making it easier for consumers to buy, whether it was buying in a specific store (Higgins), buying meals while traveling (Diners Club), or, by the 1960s, buying just about anything (Bank Americard). If the ‘blue social model’ is also about all of this, as well, then it appears that the blue social model is simply a phrase that describes any social policy we don’t approve of.

    And apologies for being out of my depth here.

  • Otiose8

    One key to undermining the blue social model which depends on excessive spending and debt accumulation is to re-establish a commitment to a stable currency. In other words, the central bank must swear off suppressing interest rates and encouraging inflation. Once savings can reliably shift value into the future the savings rate will recover.

  • gs

    There are times when cash is king. There are times when cash is trash.

    McArdle’s advice is good, but (cf. commenter vbounded) her timing, more than three years after the crisis struck, might turn out to be a contrarian indicator.

  • Louis

    The Blue Social Model is soft corporatism trough high regulation. It piles up environmental, customer protection that doesn’t really protect (remember MF Global), afirmative action, labor protections and on and on…

    You can make a case for each and every one (don’t bother) but the final result is an artificial increase in the competitiveness of big companies that can swallow all these costs long enough to drop them on their customers.

    The Blue Model government also spends a lot directly. In fact, a lot more than it is prepared to tax, even though it taxes too much. Hence deficits.

    It is a democratic system that is extracting resources from the population at a rate that almost no tyranny would dare to attempt. It is also a system that promises growth in personal income, wich is very hard to get in mature economies with high tax rates. Therefore it is logical to facilitate increases in debt. The corporations love it, banks love it, politicians keep their jobs and no interest group has any problem with it till it all goes south.

    So you can say that both governments and peoples are living the same lie and going headlong towards the same cliff.

    The need for savings to replace and grow capital is real but I see 2 big problems:

    Problem 1 – the zero interest rate. The OECD nations have such big debts they don’t dare to let the interest rate rise to a point were it compesates saving.

    Problem 2 – the fear factor. The financial system, here in Europe, but also in the US, is living on a cycle of the banks loan to governments of dubious solvency at very low rate, then get loans from the central bank at even lower rates, then government raises taxes and borrows even more to service the loans, to keep rates low… It’s scary. If someone fouls up, then what? a bank holliday like the argentine “curralito”.

    I just don’t see a way out within current rules.

  • rkka

    “The Blue Model government also spends a lot directly. In fact, a lot more than it is prepared to tax, even though it taxes too much. Hence deficits.”

    Carter got our national debt down to 32% of GNP.

    Reagan/George I got our national debt up to 63% of GNP.
    Bill Clinton got our national debt down to 57% of GNP.
    George II got the national debt up to 80% of GNP, while Greenspan blew a housing bubble that crashed the global financial system when it popped.

    From these facts, we can see that out-of-control federal deficit spending is something Red states vote for, and it’s Blues that care about fiscal probity.

    But this blog and its amen chorus are not about facts.

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