Philosophizing

[NWstubble]

Imagine if the majority of people in the US saw the light and began to implement sound personal finance principles. Imagine if people paid off their debt, didn't buy things they couldn't afford, saved for a rainy day, etc.

What would happen to our economy?

Now take it a step further, what if the majority applied the principles of MMM?

Is our economy unbearably dependent on the hyper consumeristic lifestyle that so many Americans live today?


P.S. I am somewhat new here, so if this has been discussed in depth before please politely punch me in the face.

[marty998]

Parts of the retail sector might disappear. But other industries may grow. The self sufficiency displayed by MMM would generate demand in various sectors (bicycles? hardware/tools?)

Hard to say if the industry I work in would do all right. Fund managers will be in demand to manage all those 'staches, on the assumption that not everyone will buy Vanguard. But if stocks collapse due to falling earnings then a Vanguard fund is not going to do you much good either.

As with all change the initial shock is painful but despite the bitching and moaning humans have a way of adapting.

[Ascend]

A very interesting question you bring up here, NWstubble. This has been

marty998 raises some good points here. For the sake of this thought experiment, let us assume the change, as with any societal change that occurs on a larger scale, wouldn't happen overnight. Although some groups of people and industries would cling to the consumerist method of the 'past', the economy would adapt. The way I see it, there would be no collapse as this would be a gradual process that would be driven from the bottom of the pyramid, i.e. humans, and the layers above, notably the markets, the financial sector, businesses, would need to adapt or they would lose lots of ground.

I agree that our current economy and financial sector is based on consumerism, but I believe that it is the people who have the power to dictate what kind of change they want to businesses, and not the other way around.

[catalana]

Now take it a step further, what if the majority applied the principles of MMM?

Is our economy unbearably dependent on the hyper consumeristic lifestyle that so many Americans live today?

Whenever I mull over this, I think of the tribes you occasionally see on documentaries.  They do enough to eat, clothe and home themselves, but also spend a lot of time socialising and chilling out.

I think by extension that is what would happen - there would be less produced and much more free time.  The big question for me is whether that will be achieved by 20% of the population doing 100% of the work (thanks to industrialisation).

Alternatively we could have 80% of the population doing 100% of the work - either by working 1 day a week (keeping the industrialisation) or working more (returning to more labour intensive production). 

The developed capitalist societies are looking more and more like going down the 20% route - and rewarding that 20% accordingly.  I am not sure it is sustainable, and we will possibly see the revival of socialism or even communism as a means of managing our large societies.

[arebelspy]

ERE has extensively discussed this and (I believe) JLCollins had some commentary on it.  Might be worth digging up if you're interested in the question "what if everyone did it" re: MMM/ERE non-consumption lifestyle.

Bakari has some good posts on the topic around here as well, I believe.

[mindaugas]

Since this is purely hypothetical :) I generally believe the nation would become more efficient as a whole and the cost of goods would go down. the majority of Americans are mustachian now right? So they refuse to pay obnoxious prices for things and will simply find a less expensive alternative. However, there will be certain items that we need which will be higher quality and offer the most bang for the buck, a 30mpg light pickup truck that lasts 20 years. After all, this is hypothetical and everyone thinks this way so it permeates through all society to include manufacturing, government, services, etc. Utopia!

[mindaugas]

ERE has extensively discussed this and (I believe) JLCollins had some commentary on it.  Might be worth digging up if you're interested in the question "what if everyone did it" re: MMM/ERE non-consumption lifestyle.

Bakari has some good posts on the topic around here as well, I believe.

Here is the article btw.
http://www.mrmoneymustache.com/2012/04/09/what-if-everyone-became-frugal/

[NWstubble]

Thank you all for the thoughtful responses, and cheers Mindaugas for the link, had not seen that post yet.

I tend to subscribe to the 'gradual change would allow the economy to adapt' point of view. But it certainly would get ugly if there was a major sudden shift towards frugality in our society.

Speaking of which, The talking heads seem to think consumer confidence is low right now and is keeping the brakes on any type of economic recovery we might see in the US (at least in part). Now, at the same time stats were flying around about people paying down debt at high rates, slashing overall credit card debt by something like 10% a year. I seem to remember at least a few articles also mentioning people saving more, building emergency funds and such after seeing the impact of the housing collapse. So there may be hope yet.

But alas, I think I heard recently that vehicle related debt increased quite dramatically in the past year, so I am sure it will not be long until we are right back to where we started...

[marty998]

Savings rate is quite high in Aus right now. But we seem to be talking ourselves into a recession....it's as if there is this feeling that we should have had one but didn't, so we are going to act like we are going through one just because the rest of the world actually is going through one. Deleveraging is a good thing, you can't keep going on borrowing forever, unless you are the US government (16,000,000,000,000 and counting?)

Anyway, have you ever noticed how the things you want to buy, no matter how small or large (right up to the type of house you want) always feel like it is priced just a little bit beyond what you would prefer to pay for it? Not too much but just a little bit beyond?

I reckon that would still hold true, where you live in today's economy, or a mustachian frugal economy.

[Jamesqf]

...a 30mpg light pickup truck that lasts 20 years.

Got that already.  Well, almost: '88 Toyota 4WD, 27 mpg average.

[mindaugas]

...a 30mpg light pickup truck that lasts 20 years.

Got that already.  Well, almost: '88 Toyota 4WD, 27 mpg average.