Why Are People Now Encouraged To Buy? | The Business Desk with Paul Solman | PBS NewsHour

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Why Are People Now Encouraged To Buy?

Name: Donna Zadnik
City & State: Arlington, Va.

Credit Card; file photo

Question/Comment: Is this economic downturn really related to so many U.S. citizens buying themselves into big debt with credit cards? Why then, are people now encouraged to buy?

Paul Solman: Citizens, corporations and government ALL bought themselves into big debt that was UNSUSTAINABLE. But if all stop borrowing and spending at once, the system stops. All of a sudden. That's what has happened. And it's the suddenness that businesses can't adjust to, given their current costs.

So they lay people off, discouraging borrowing and spending even more. Thus, if those who can afford to were to keep spending, the downdraft would be mitigated. But this is the great paradox: we're supposed to both spend and save. It's well illustrated in a joke by Yoram Bauman, "the world's first and only standup economist."

-- Posted January 25, 2009 | Comments ( ) | Permalink