A recent article in The Economist made some rather ambiguous claims about baby boomers like me:
Now that the generation is moving into retirement, what are they going to do with their money? The question matters for more than just suppliers of cruises and golf clubs. Boomers have deep pockets, so their spending choices will exert a huge influence on global economic growth, inflation and interest rates. And it turns out boomers are remarkably stingy—not just in America but across the rich world. They are not spending their wealth, but trying to preserve or even increase it. The big question for the economy in the 2020s and 2030s will not be why boomers are spending so much, as many had anticipated. It will be why they are spending so little.
I suppose that I am one of those “stingy boomers.” Before writing this post, I decided to check to make sure that I knew the definition of “stingy”. Here’s a definition provided in an online dictionary:
unwilling to give or spend; ungenerous.
OK, now I’m totally confused. Which is it? Unwilling to spend? Or ungenerous? I regard people who spend as selfish, and people who are unwilling to spend as generous.
The Economist also uses the term “miserly”, which is every bit as ambiguous as stingy:
Our analysis suggests that the wealth-decumulation puzzle is becoming still more puzzling, for boomers are more miserly than previous generations.
Think of it this way. You have X dollars of total wealth. You can spend the money on consumer goods, in which case you benefit. Or you can refrain from spending the money (i.e. save), in which case someone else benefits.
In the article, The Economist claims that high levels of boomer saving will tend to depress interest rates (which is plausible) and will also tend to depress inflation (which is highly dubious.) But they ignore the most important effect; it would boost economic growth and raise the living standards of millennials and zoomers.
PS. A new WSJ article has exactly the opposite view. They claim that a surge in spending by boomers is driving the economy:
‘We’re Not Dead Yet.’ Baby Boomers’ Good Times Drive the Economy.
Sky-diving, concerts, classic cars. An influx of older Americans bolsters the nation’s fastest-growing city. ‘We have more fun than our daughter.’
My conclusion? Don’t trust a reporter’s generalization about the economy—look at the data.
READER COMMENTS
Philo
Jul 7 2024 at 11:02pm
I agree with your post, but I must complain that ‘spend’ is an equivocal term, that should be used with great caution. When you write, “I regard people who spend as selfish,” you are treating ‘spend’ as meaning what I would express as “spend on consumer goods or services for oneself.” I am using ‘spend’ to mean *buy something (with money)*, so in my lingo buying a bond or a share of stock, or buying a consumer good so as to give it to someone else, is “spending.”
Scott Sumner
Jul 7 2024 at 11:21pm
Good point. I should have indicated “spend on oneself”. But “spending” on stocks and bonds is viewed by economists as saving, not spending.
BC
Jul 8 2024 at 3:48am
“But they ignore the most important effect; it would boost economic growth and raise the living standards of millennials and zoomers.”
As usual, any impact on GenX is irrelevant and not really worth considering… 🙂
Craig
Jul 8 2024 at 7:09am
“And it turns out boomers are remarkably stingy—not just in America but across the rich world. They are not spending their wealth, but trying to preserve or even increase it.” — Economist article
Yeah, and? My dad was on a treadmill until the pandemic, $X in, $Y out and you’ll be good as long as $X is greater than $Y and so at age 71 he suddenly found himself off that treadmill and in retirement as a result of the pandemic where every day is Saturday and instead of going to work and getting that $X, the situation lends itself to doing something somewhere that will cost something. So if $X is less than $Y eventually you’ll run out of money and if you’re 71, well, you know that day will come, but you don’t know when and so for peace of mind you want, if at all practical, for $X to be greater than $Y. Stingy?
Matthias
Jul 9 2024 at 9:21pm
You can buy an inflation index annuity to remove the uncertainty about monthly income.
MarkW
Jul 8 2024 at 10:33am
What a depressingly bad take from the Economist. Money is not a resource, it is a claim on resources (essentially IOUs from the rest of the economy). If boomers went crazy buying frivolous stuff and services they didn’t really need (e.g. kitchen remodels), that would be in competition with younger cohorts wanting to purchase the same (the younger cohorts having a greater need and less wealth). Saving and investing their money helps grow the economy, and if boomers die never having spent their assets, they’ll handed down to their heirs. Which process must already be well underway already as the oldest boomers still living are now nearing 80.
About the only decent argument I can think of for boomer ‘selfishness’ is their reluctance to sell their larger homes in high-demand metros. But it is not their fault that high-interest rates and various tax policies make downsizing not worthwhile.
Jeff
Jul 8 2024 at 1:08pm
“it is not their fault that high-interest rates and various tax policies make downsizing not worthwhile.”
Who do you think voted for those policies?
MarkW
Jul 8 2024 at 2:31pm
Well, Prop 13, for example, was voted in by California voters in 1978. Michigan’s comparable Headlee amendment was approved the same year. The youngest boomers weren’t even of voting age at that time. Most of the people who voted for the proposals were earlier generations — especially older folks worried that rising property taxes would force them out of the homes they owned.
Jack QR
Jul 8 2024 at 11:57am
A propos: “In this whole world, there is nobody more generous than the miser—the man who could deplete the world’s resources but chooses not to. ”
“What I Like About Scrooge: In praise of misers.” By Steven E. Landsburg
https://slate.com/human-interest/2004/12/what-i-love-about-scrooge.html
Scott Sumner
Jul 8 2024 at 12:07pm
Yes, that’s a classic post.
Mactoul
Jul 8 2024 at 10:12pm
Nice article. However strictly speaking, a miser is a person who doesn’t spend when he should. This definition gets rid of the apparent paradoxes.
Scott H.
Jul 10 2024 at 9:08am
The issue is that our economic education cannot and does not overcome our culture. Culturally, our economic instincts are inspired by writers like Marx who managed to put the issue into the easily digested terms of good versus evil.
What is evil? The rich having money.
What would be good? Taking from the rich and giving to the poor.
What would be almost as good? Forcing the rich to pay other people for things.
David Seltzer
Jul 8 2024 at 3:49pm
Scott: there is a deeper context in The Economists article. Their presumptuousness is reflected in the pejorative adjectives “stingy” and “miserly.” What I do with MY wealth and income is none of their concern. As for the yacht I might purchase with my after tax bucks, guess who else benefits from that expenditure. If the author(s) of the article read Leonard E Read’s essay, I, Pencil They would be enlightened. If boomers are loaded? which boomers. If we’ve, I’m one, accumulated wealth over our working lives, it was done so with the interference of taxes, regulations and the stress of providing. In the end, a substantial portion of the our estates will be subject to state and federal estate taxes just for the privilege of dying. Apologies for the indignant rant. I seem to be doing more of that recently.
Scott Sumner
Jul 8 2024 at 6:53pm
“Their presumptuousness”
Agreed, but as I indicated, the oddest presumption of all is that saving is bad for the economy.
Jim McGinness
Jul 9 2024 at 12:40am
This is the same misunderstanding often referred to as the ‘paradox of thrift’.
Rajat
Jul 9 2024 at 8:54am
I think you’re over-complicating this. Stingy is someone who wants to hold on to their money for as long as they can – it’s not normally used in some sort of lifecycle sense where dying with lots of money in the bank implies doing others a favour. The Economist’s observations are certainly true about Australia’s self-funded retirees. Many seem to increase their wealth for the first decade or more of their ‘retirement’, as they live off less than the sum of any ongoing labour income and their investment returns. My mum is 79, has only just given up part-time work, and has well over $A2 million in assets apart from her home. She indulges in certain luxuries, but I can’t see her getting close to running it all down. And not for lack of encouragement from me, I hasten to add!
I think there are a few factors at play. Many Boomers who grew up middle-class enjoyed far fewer comforts than even relatively poor people enjoy now. I think they often struggle to see value in what can seem to them to be frivolous spending. It’s also the case that Boomers with plentiful savings are self-selected – they’re mostly high in conscientiousness, have worked and saved their whole lives, and can’t easily shift into reverse. Who can blame them? Finally, I don’t know how the US retirement incomes system works, but Australia has a means-tested government pension and anyone above the cut-offs gets nothing. That encourages self-funded retirees to err on the side of thrift. After all, my mum doesn’t know if she’ll drop dead tomorrow or live another 20 years. Of course, she won’t be spending much on fancy cars, travel and restaurants at 99, but she wouldn’t want money to be the constraint. Not to mention that she would like to leave something fairly substantial to her children and grandchildren.
All in all, I think it’s easy to say that Boomers are stingy, because to those of us far away from retirement, who can afford to be blase about a 10% chance of running out of money before dying (mind you, the modest government pension and aged care facilities are available when one’s wealth falls below the means-tested threshold), they seem overly risk-averse. Come that time of my life, I would like to think I can loosen the purse-strings more than my parents have. But most likely, I myself will die with more than a few good holidays, meals and bottles of wine forsaken.
As for the WSJ story, well, I can’t read it, but the extract you quoted doesn’t provide any data. It sounds like one of those anecdote-rich light entertainment reads.
Scott Sumner
Jul 9 2024 at 12:06pm
Both the WSJ and The Economist lack data. In any case, I still insist that saving is not “ungenerous”, and that saving does not result in slow growth and low inflation.
Scott H.
Jul 10 2024 at 9:09am
Lol. Sorry Mactoul. That was supposed to be a stand-alone comment.
Scott H.
Jul 10 2024 at 9:22am
So, Prof Sumner, if you think saving is good for the economy, then what do you think about the Paul Krugman position that the Chinese are perniciously supplying the world with cheap goods while not consuming enough on their own?
BS
Jul 10 2024 at 11:42am
If I spend on consumer goods for myself, someone else still benefits – the providers whose employment my spending supports, and the governments that collect income and sales taxes. If I save, people who need to borrow my savings benefit. I will have to take my money out of institutional accounts and stuff it in a mattress if I truly want to deny benefits to anyone else.
Don Geddis
Jul 10 2024 at 10:09pm
With a (typical) central bank targeting aggregate demand (or inflation), your idea of “taking money out” and then “stuffing it in a mattress” will ALSO have no effect on the economy.
Don Geddis
Jul 10 2024 at 10:07pm
The misguided concern about “saving is stingy” probably comes from a poor theory of monetary economics. It reminds me of arguments about the Marginal Propensity to Consume, sometimes used by liberals who want higher tax rates on the rich (because they “don’t spend it”), and redistribution to the poor (who “spend everything they get, thus helping the economy thrive”).
All of that depends on an incompetent central bank, who provides insufficient aggregate demand. It assumes that “more demand” necessarily means “a stronger economy”. Now, that may be true, from time to time — but that is because central banks are often incompetent. They are leaving trillions of dollars on the sidewalk, when they could be a free lunch, picked up with essentially no effort and no downside (like in 2008).
If a central bank is managing demand appropriately, then there is no free lunch, and then additional demand means mostly additional inflation, not additional wealth. And, in that case, you DON’T want to redistribute money from low MPC to high MPC citizens; and you DO want your wealthy citizens to “save” (by forgoing real consumption).
But it all comes down to whether the economy has insufficient demand, or not. Which means: whether the central bank is screwing up, or not.
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