The lessons economic history tried to teach us

For what it’s worth, it’s not your fault. I mean, how could it be? You’re just a single grain of sand in the hourglass that flips too quickly. Who am I, or any of us for that matter, to expect you to break a long standing mold and actually spend more money during hard times? How many of your friends really subscribe to the notion that spending more is how a nation leads itself out of an economic crisis?

Herein lies the problem, folks. Historical trends, one in particular, tend to show some surprising facts about people and their habits. One of the habits we carry around as citizens is we like to hold on to our money when all we can hear is “recession”. Why wouldn’t we? Well, because a teaspoon of kerosene may not be enough to noticeably amplify a forest fire, but it isn’t helping either. When people lose faith in their own purchasing power and in the benefit of purchasing goods, the economy suffers as a whole.

The modern approach to economical healing through proverbial financial lethargy isn’t new. The 1920s witnessed an economic theory, or set of theories, that invested unwavering confidence in a seemingly self sufficient market. The problem was that the hands off approach led to inflation and businesses doing what lack of regulation allow them to do: just about anything they wanted.

We assumed the market would regulate itself. It didn’t, backseat drivers. As time passed we came up with new theories to explain economic trends so we could just watch them happen. Backseat drivers AND excuse-makers. Effectively, we sat back and, technically, continued not having a hand in our own economy.

If it wasn’t the fault of a dimwitted government official, it was that of a theory that had no place being published in the first place. Looking back at isolated chunks of economic history — from Adam Smith, to Keynesian economics, to the modern global economy — a recurring theme is apparent. As spenders and consumers, we’ve more often than not helped to amplify the ill effects of a down economy. We held on to our money, kept it tightly to our bosoms, when in fact it rightfully belonged to those running shoes you’ve always wanted.

To spend one’s hard earned money frivolously is far from advisable. But spending confidently, knowing that this is what works to lift us out of fiscal darkness, can only add to the recovery. Roger E.A. Farmer of the Financial Times makes note of the natural drop in confidence of a people when faced with a financial crisis. He said, “If confidence is high, wealth will be high and employment will be high. If confidence is low, wealth will be low and employment will be low.”

Oddly enough, it really is that simple. Spend and contribute to the recovery, or hold off and risk financial stagnation on a bigger scale than just your wallet. I’m not suggesting that anyone go out and take loans to purchase something they neither need nor can pay for. But, for goodness’ sake, buy that new shirt!

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