Cover of MoneyWeek magazine issue no 572

Brace yourself

20 January 2012 / Issue 572

China's in for a hard landing


  • End the crisis - scrap bonuses
  • A medical breakthrough you can't ignore
  • The carpet-cleaning conman who turned preacher


We all consumed too little

Most people like to think that overconsumption caused our current crisis. Thanks to Alan Greenspan’s stupidly loose monetary policy, we all borrowed and spent too much, and ended up with houses we can’t afford, filled with tat we don’t need. So we need to run down debt – both private and public – and consume less.

James Livingston doesn’t agree. In his new book, Against Thrift, he argues that we in fact didn’t consume enough. Worse still, having caused the crisis, underconsumption (now caused by deleveraging) is prolonging it needlessly. If we want times to get better we must laugh in the face of austerity. Saving for a rainy day is “a soul-crushing emotional trap as well as an economic dead end”.

I can feel the sharp intakes of breath from regular readers, so let me say that behind the deliberately provocative prose there is some interesting stuff here. Livingston thinks that the rich have too much money; that bubbles are formed by those with excess capital pouring it into one nonsense after another; and that the solution is for it to be taken from them and given to poorer people to spend.

He points to 1933-1973, a period when net investment in the US was low, but consumer spending was on a roll due to a rapid rise in government jobs (a transfer of cash from high-earning taxpayers to lower earners via the state), and when unions were winning constant pay rises. To Livingston, that suggests the real driver of growth is not so much investment as rising incomes and falling inequality.

• Read the full editor’s letter here: We all consumed too little.