The Paradox of Thrift in Singapore

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I refer to CNA’s article.

SINGAPORE: Singapore will have an expansionary budget next year to help its citizens cope with weaker economic growth.

Senior Minister Goh Chok Tong said this at the launch of Home Improvement Programme (HIP) for some flats in Marine Drive on Thursday evening.

He said Singaporeans should brace themselves for a more difficult time next year, but the government will try to generate growth and help Singaporeans face the tougher times.

Mr Goh added that although many are now concerned about costs, Singaporeans should not save excessively.

“If all of us go into a power save mode, then the economy will really go into a recession! This is what economists called the Paradox of Thrift. If you have sufficient savings and can afford to spend, you should continue to spend on life’s little pleasures.

“Take your family to the movies, shop, dine out at restaurants and hawker centres, go for your regular foot massage, indulge yourself at a spa, take a taxi, donate to charity and so on.

“This way, we keep the economy going. In fact, I would say when times are a little slow, you could get the best bargain,” the senior minister said.

I remember shortly after September 11, George Bush urged Americans to go out and spend, as a form of patriotism. He made it possible to do so too, by lowering interest rates. And Americans answered to the clarion call. 5 years of surging economic growth followed. before it all came to a halt in 2008.

Why did it come to a halt? I leave that for the experts to answer. However, we have SM Goh urging Singaporeans to do the same thing here now, albeit not using patriotism as a reason. Perhaps he knows that using that would be rather stupid, considering a significant proportion of our Singaporeans are not true-blue citizens. That aside, would what he urge work in Singapore?

Singapore is a Asian society. Asian values do promote savings more than spending. The older generation still tend to save more during rainy days than spend. Personally, I am uncomfortable with the notion of spending more as recession looms, which I think many Singaporeans can empathise with. In a sense, its selfishness in play, somewhat like the Prisoner Dilemma, as savings would benefit individuals but not the society. Singaporeans are not like Americans who would dare to spend more now(if given the incentives) and think later, in which the effects of such mentality is being played out today. Hence given the current status quo, which is if the government does not do anything to stimulate spending such as cutting interest rates, I think SM Goh’s call would just be a call to wilderness.In fact, Singaporeans might even save more,if they learn from America’s lessons, given SM Goh’s rather ominous warning.

However, assuming the government does take actions to stimulate spending, would Singaporeans bite? I would say it really depends on which age group their measures target. If the measures actually affect the younger generation more, and putting more disposable income into their hands, I would say the younger and more materialistic generation would bite. If the measures affect the older generation more, I would say the effect would be minimal at best. Also, given the blanket bank guarantee, Singaporeans would be tempted to save more, since there is minimal risk of the money disappearing.So I think SM Goh’s call is uh, to nobody.

What is more likely is the government would just sit back as usual and take a more cautious approach.We have never been a trailblazer. Perhaps something like workfare would come out. It is really unlikely that the government would take to cutting interest rates drastically in a bid to boost consumption. The government keeps focussing on retraining and more training during this time, rather than retrenchment. However, they forget that companies who cannot afford to send their staff for retraining are the ones foundering and the ones that are most likely to retrench. Those that can send their staff for retraining would be most likely to be the ones still in business, which wouldn’t make sense to send their staff for training. Anyway, if the government takes a cautious approach, then I would say SM Goh’s call again is to the greater wilderness. Empty vessels make the most noise here.

What I would hope not happen is that the government forces spending. How? By doing it the way we have gotten used to in the past 2 years, which is by raising prices of necessities. =) One should never discount this possibility. Makes sense for the government right, since you cannot don’t use necessities. Force prices to go up, more money flows into their coffers, take a little bit out and give back to citizens, take the rest to invest, since we are in it for a LONG term sure will get back our money and make profits, pat ourselves on the back and increase pay again, repeat cycle. =)

So, I am waiting to see what measures would the government take to encourage people to heed SM Goh’s call. He seems more and more prominent these days. Hopefully, they didn’t send him to be a Joseph Goebbels.

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Tags: paradox of thrift in singapore, save less, SM Goh, spend more