Oops, too much thrift

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By Gabriella Boston

Some refer to it as the "prisoner's dilemma," while others call it the "paradox of thrift." By any name, it means that too much individual thriftiness - saving for a rainy day - practiced en masse exacerbates economic distress on a societal scale.

That's where we are now.

People - even those who can - aren't spending their money.

It's not out of sympathy for those who go without, says University of Maryland economist Jeffrey F. Werling, but rather a fear of continued downturns and lack of confidence in government and financial markets.

"People feel like the system has failed them," Mr. Werling says. "Everyone starts saving at the same time, and it contributes to the downward spiral."

It's a downward spiral because - "unfortunately" - two-thirds of the economy is based on consumer spending, says Mike Stanfield, chief executive of VSR Financial Services Inc.

That's an awfully heavy burden on the consumer: the idea that if you don't spend, you are hurting the economy, says Stuart Vyse, psychologist and author of "Going Broke: Why Americans Can't Hold On to Their Money."

"It's very hard on the consumer," Mr. Vyse says.

Which begs the question, how did we get here, to a place where consumers' shopping habits at the Gap Inc. and Best Buy Co. Inc. are the prime drivers of our giant economy?

"It's a direct product of everything going so well for us," Mr. Werling says. "It's because we're so rich that consumption can drive the economy."