New Venture Lab: Equipping Christian Entrepreneurs

As explained before in this post Why the Economy Is Going To Get A Lot Worse Before It Gets Better back in January, a nation's economy can only grow via three mechanisms of capital formation:

• Increased savings, which provides growth capital (we’ve had too little of this in our economy)
• Increased debt (we’ve had an imbalance of too much of this)
• Foreign direct investment, which is when foreigners invest capital in US-based companies (this is not a very attractive time to expect an increase in this area)

But unfortunately, our nation's leaders -- and many academics and advisors -- keep trying to get consumers to spend our country out of our current recession/depression. 

Consumer reaction to the current crisis, however, has been the correct response: to save more, rather than spend more.  If only we would let the free market reign, we could get through this mess.  Yes, we would have to live through the "J" curve, but we would get this mess corrected.  But instead, as in this recent quote from the Harvard Business Publishing, conventional wisdom is falling on deaf ears:

When the housing bubble burst and the financial and economic crisis ensued, falling values for homes, stocks, and other assets battered US households. From mid-2007 through the end of 2008, their net worth fell by roughly $13 trillion, erasing all the gains in net worth, relative to disposable income, since the early 1990s. It's not surprising that consumers have reacted by spending less and saving more. But this deleveraging could have its own deleterious effects: For every 1% increase in the consumer savings rate, spending is reduced by $100 billion — a serious drag on any recovery.

But as we can see the current plan is not working: GM has just blown through $10.2 billion in the past quarter with nothing to show for it, Citi and Bank of America are both saying they need more money to survive and president Obama keeps asking for more stimulus money to prop up these business wrecks that deserve to die instead of being put on life support. 

So far, the stimulus spending has been $3.4 trillion as measured by the federal government and as high as $12 trillion as measured by private think tanks that measure all the impacts of the stimulus bill.  The sad thing is that instead of spending all that money on banker and auto-maker bonus programs and silly community initiatives, we could have simply sent a check to every man, woman and child in the U.S. (303.8 million of us) for between $11,000 to $40,000 depending upon which stimulus number you use. 

For my family of seven, that would have meant a total check for between $80,000 and $280,000.  I actually might have spent some of that instead of saving it.  The way it is, my family is now much worse off through the increased federal debt as it will have a deleterious impact on us for years to come.  The more our government tries to bail out the economy, the more I am pulling back on spending and the more I am saving what I have.  Why can't they see that?