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The Thrift Paradox

Dickson C. Igwe. Photo: VINO/File
By Dickson C. Igwe

There are two types of player in the market economy: the producer and the consumer. Producers and consumers can be further described as savers and spenders; and lenders and borrowers. This is an important dichotomy of the marketplace.

Jack Big Spender and Tom Cheap are both crucial to economics. The thrifty are a minority in the marketplace. The vast majority of players in the market are spenders.

The reason for the existence of these two opposing groups is a mystery in economics. However, there may be historical, cultural, and sociological reasons why people behave in specific ways in economics.

Now, Jack the Bohemian is a thrifty type. Jack, in Virgin Islands parlance, ‘’does not spend a bad cent.’’ Jack is wealthy man. Jack is easily a millionaire many times over. The great hotelier is in the top 10 percentile in terms of wealth measures.  

However at the lunch table, while this ‘’ struggling member of the 90% will swiftly gloss over the bill and frequently pay without as much as a second glance at the dreaded piece of paper, Jack peruses the lunch receipt with the exacting approach of a forensic scientist. Jack may be termed, ‘’CHEAP.’’

Whenever it is time to ‘’cough up’’ after a splendid meal, a broad smile appears on Jack’s handsome face. Jack is in his element. This is a time for ‘’deep thought’’ for the natural negotiator. If the meal is ‘’praiseworthy’’ Jack will make that known loudly and unequivocally. Jack will tip ‘’big,’’ when jack is pleased with his food and wine.

On the other hand, with a terrible meal, Jack possesses the smile on the face of a tiger. A poor meal will meet Jack’s disapproval, swiftly and bluntly.

Once, Jack demanded a refund after a particularly poor lunch. The salad was ‘’off’’ and the coleslaw was made of a mix that was simply, awful. This was a buffet at a well - known ‘’outfit’’ in Road Town. 

This Old Boy was shocked and embarrassed at Jack’s vocal and overt protestations. Not Jack! Jack could care less about his clear irritation and anger at a public venue. Jack was in the process of making a loud and lengthy speech in the crowded establishment about the ‘’horrific experience’’ he just had, when the horrified manager waived the bill. The lovely woman stated that it was OK that the two Old Boys at the table leave without paying a cent. Such is Jack’s exacting nature when it comes to spending his cash.  

Jack is clearly of the Chicago School of Economics. Jack is a supply-sider. Jack is a producer: a savvy businessman and an advocate of Austere Trickle Down. What is good for Jack is clearly good for the 90% in Jack’s world.

This Old boy, on the other hand, is a natural consumer. He possesses ‘’porous pockets.’’ Cash in his pockets has a short life. Yours truly is one of life’s spenders. A ‘’fat wallet’’ in his hands will swiftly shrink as he waltzes about the shopping mall,  high street, and the bar at Nanny Cay Resort.

OK. The 1% tend to be frugal. The 1% are instinctive savers. Those that inherit wealth focus on protecting that inheritance. Thrift is a culture that appears to be inherited, passed on from generation to generation, like a gene. The rest of the wealthy build businesses from the scratch, or are promoted to chief executive officer in a Fortune 500 corporation, and eventually buy stock and further, receive stock, as executive bonuses.

Globalism and deregulation has exponentially increased the wealth of the 1% to such an extent that 100 families today control the global economy.  

A number of the superrich are simply investors who play the markets. They probably began saving at an early age, or inherited cash and appreciating assets. They use this largesse to buy and sell currency, commodities, treasury notes, corporate stocks, and various investment assets, and instruments.

These investors buy stocks cheap and hold on to those stocks, sometimes for decades, even generations. Anyone who purchased stock in Apple or Microsoft - when those businesses first sold shares to Joe Public - and held on to those shares, are smiling from ear to ear today.  

The 1% spend a lot of time and effort contemplating on how to maximize returns on investment, or pondering on that new invention or innovation that promises to place Jack in the solid fold of the ‘’jet set.’’ The wealthy possess an entrepreneurial mindset. The 1% will take a well-calculated risk.

Spenders are in a separate parallel. Spenders are life’s consumers. Spenders are more concerned about the model of their next car, their next vacation, or an expensive home electronics purchase. Usually, these are made on credit. The product purchases and credit used to make these purchases are owned by the ‘’frugal rich.’’ In fact, all debt is ultimately owned by the wealthy- or better stated, owed to the wealthy. Spenders tend to live from paycheck to paycheck.

Ok, both Jack the Thrifty and Joe the Big Spender need each other. This is a symbiotic relationship that is a great mystery of economics. It is also a paradox.

To be continued.

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3 Responses to “The Thrift Paradox”

  • water (14/12/2019, 14:45) Like (0) Dislike (0) Reply
    Of interest
  • Diaspora (15/12/2019, 08:18) Like (2) Dislike (0) Reply
    Two common idioms fling around are 1) Talk is cheap and money buys land, and 2) It takes money to make money. There is a significant wealth gap among Whites, Asians, Blacks and Hispanics;Whites/Asians/Hispanics/Blacks. Race and ethnicity are contributing factors for the wealth disparity. Further, the rate of saving, income levels and economic opportunity also plays a key role in the wealth disparity. The rate of saving is influenced by culture, history, social, demographics.......etc factors. People with money, ie, higher income stream, education, inheritance.......etc have the ability to save and invest, building on their wealth; people living on the margin are less so.

    For the most part, people (Black and Brown) at the lower rung of the economic ladder struggles to meet basic needs and have less, if any, disposable income to save and invest. Those that earn the less have to spend more to survive. The Marginal Propensity to Consume (MPC), the ratio of consumption and income, is higher among the poor people and in underdeveloped countries. The more consumed the less saved. The MPC is typically between 0 and 1 and can be greater than 1 if borrowing is used to supplement income.

    Moreover, the rich basic needs are satisfied so any additional income are saved and invested. On the other hand, the basic needs of the poor are unsatisfied so most, if not all, of their additional income is spent on meeting basic needs and less, if any, is a available to save and invest. People with money, people with more disposable income can earn income by investing in bonds, stocks, mutual funds, real estate........etc. Investing and the power of compounding are a powerful/profitable combination for wealth building. Nonetheless, all that said people at the lower rung of the economic ladder must take action to reduce MPC and increase margin propensity to save (1-MPC).

    Millionaires and billionaires are driven to make as much money as possible and are generally frugal people. They can afford to drive expensive vehicles (can buy the whole dealership), buy expensive big toys, dress to kill......etc yet they typically refrain from doing so. They invest their money on appreciating assets. Thomas Sowell in his book Basic Economics says as soon as we are living comfortably, we jumped to living extravagantly.
  • blame game (15/12/2019, 13:24) Like (0) Dislike (1) Reply
    @Diaspora, pure rubbish. It is blaming others for wanting to live a champagne life on beer money. Instead of investing on footwear, wheels, jewelry, name brand clothing......etc people should make it a habit of forcing themselves to save a likle and invest. Next thing you will hear that Anglos had an unfair advantage in acquiring resources so that they can afford to save and invest and that Whites are keeping Blacks and Latinos back. Slavery over a long time ago so that slave descendants can be doing better. Stop blaming the Man, Babylon. Stop trying to live large and in charge if you cannot afford it. Live within your means and stop trying to keep up with the Joneses and Johnsones.


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