A thorough reading of the Old Testament will show that the worst, and the most persistent, sin that the Chosen People committed was that of idolatry. They did it time and time again. This, and God’s punishments that followed, were actually predicted in Deuteronomy 29, 30, and 32. The people of the Northern Kingdom, Israel, were captured by the Assyrians, never to return, and the Assyrians populated their land with other pagan peoples. The Southern Kingdom, Judah and Benjamin, were captured by the Babylonians and taken to Babylon for about 45 years. When the Persians defeated the Babylonians, the Judeans and Benjaminites were allowed to return to Jerusalem and rebuild the city wall and the Temple, which the Babylonians had destroyed. 

What does this have to do with anything? Plenty. We are all sinners. But when we commit a sin, we need to go to confession, if it is a serious sin, and “fess up” before God in the person of the priest. If not a serious sin, we still need to admit our sin to God. Now many, if not most, have skeletons in their closet. If you opened my closet, the skeletons would hit you on the head. These skeletons are generally between you and God, and anyone else who took part in the skeleton formation process. They are no one else’s business—unless they are publicly discovered. But if it is made public, we need publicly to own up to the fault, as painful as it is. Lying is a sin, too. Assuming that this horrendous act is actually true and someone finds out about it, we need admit it and not try to lie our way around it. This applies especially to public figures, upon whom the public trust reposes. 

The case I wish to bring up is former Senator John Edwards. In the last campaign leading up to the nominations for president, Edwards tried to take the high road, coming across as the defender of the poor, pushing his point to the verge of, I believe, class warfare. Despite the fact that he was loaded with cash (which he seemed not to wish to share with the poor), had a gigantic house, and made his money as an ambulance chaser, he still came across as the candidate who really cared. Then, a newspaper caught him with his hand in the “nookie jar.” Not only did he have a long-time mistress, but he even fathered a child through her. What was his first and continuing reaction? Denial. Only recently did he announce he would have a press conference and own up to his skeleton. 

Why did it take so long to admit his actions? I submit that it was a form of idolatry. The most important thing to Edwards, and of course I am not judging his subjective guilt, and maybe he does not even realize it, is his status in the world. That is his real god! Once a person is caught and it is verified that he or she really did and is doing these things, they not only need to repent, but reject further sin, by avoiding outright lying. People need to take responsibility for ALL their actions and the consequences of those actions. It was only when the Chosen People admitted their sin, and repented, not half-heartedly but fully, did God smile on them and restore them. 

All through the opening chapters of the book of Genesis, God seeks to get Adam and Eve and Cain to admit their sin. None of them did. Adam even blamed Eve and God in the same breath, saying that the woman God gave him tricked him. Do we not do the same things? Is this a good thing? Obviously not, and we need to work on this. 

Please do not accuse me of picking on a liberal Democrat. The governor of South Carolina is in a similar boat, and by the way, the now former governor of New York State. And then there are the governors of Illinois, Gary Hart and President Nixon, and on and on. This is a question of character. We are all weak, and any of us can make these moral blunders. Frequently, we get the “holier-than-thou” bug, but this usually happens when God tries to teach us some humility by allowing us to fall. It is not for nothing that there is the old saying, which is from St. Paul, I believe, “Pride cometh before a fall.” 

If the United States, or the West for that matter, is to rejuvenate itself in economic matters, the people need to get some character and begin, not only to try not to abuse money, power, and other people (Bernie Madoff comes to mind as the triple threat) but admit it like adults when they fall; first to God, with a firm purpose of amendment, but even to the public when necessary. If you make a god of your social status, political job, or anything else, you will bring down on yourself and many others the punishments just like the Chosen People did, in God’s attempt to call his child into repentance. 

I have pointed out in previous articles that our profligacy has brought on the current economic crisis. This is not something that fell from space one day; we collectively did it. We need to own up to it, and repent.
 
“Cash For Clunkers.” This, as everybody knows, was the administration’s plan to get environmentally unsound cars off the road. The idea was that if somebody had a car that had been around too long, the piston rings were probably so worn down that you could drive a car through them, burning oil was spewing through the atmosphere, they were gas hogs, and were bought before the current environmental regulations on autos were imposed. If you turned your clunker in, you got $4500 in cash from the government which could be used to purchased a NEW car, which would be less harmful to the environment. The car you traded in would be destroyed so that it could not be resold and put back on the road.
 
Now, let me get this straight, and maybe put it in more truthful terms. If you were driving a real clunker, could it be that you could not afford a new car to begin with? Now you are to bring the ol’ jalopy in, and for $4500 in cash, go into debt for a new car costing, say, $25,000? While it is true that a clunker would not bring in much exchange value, so that this program would up the return, would you bring in your old car in for $4500 if you were not already going to sell it and buy a new one anyway? Just take my own experience. I drive a 2000 Buick. I bought it used, and it is a great car. I have no intention to sell it, but even IF I wanted to trade it in for a new one, and IF I could have gotten $4500 dollars for it, I still could not afford a new car. Would the promise of $4500 make me go into debt to buy a car I could not afford to make the payments on? Absolutely not. Forget the fact that I am a trained economist. My dog would not do that either.
 
Take another aspect. In my experience, real clunkers are driven by poorer people anyway. They can’t afford a new car either—hence they drive the clunker until it can drive no more. What do they do then? Buy another clunker from the used car market.
 
But, in fact, many people did trade in their cars. As mentioned above, some of those were going to trade them in anyway and buy new ones; they just got more on the trade in than they expected. What about the rest? Were these folks lured into the trade-in by the promise of government cash who never should have bought new cars? Is not this the same thing as the Community Reinvestment Act, which tried to persuade people to buy houses they could not afford? And what happened? Many lost their houses because the Act encouraged people to buy houses they could not make the payments on and subsequently they lost their houses. Don’t you think the same thing will happen to many people who foolishly brought in their old cars for brand new ones? I believe the repossession statistics will bear this out in a few months.
 
Maybe, despite the sucker ploy that this cash for clunkers program stimulated, the worst thing is that the country is in a recession. Just today, the Federal Reserve Bank of Atlanta said that the real unemployment rate is now 16%! Do families need more debt? If they can’t make the payments on their new car, they lose the car. If they do not live in a big city where there is lots of public transportation, how will they get to work? Did Obama do anybody any favors?
 
Then there is the used car market. Poor people live by the used car market. When their car dies, they cannot afford a new car, so they get a used car. But the cash for clunkers program has cut back on the used cars available. Assuming the demand is relatively stable, there are fewer cars to go around, so the price per car is higher. For all the rhetoric from Obama about helping the poor, and the Catholics who support him because he claims to be helping the poor, how did this plan help the poor?
 
Lastly, as we know, the plan ran out of money and had to be refunded and finally was recently stopped. What does this tell you? Coupled with the gigantic government debt, it says that government always underestimates the cost of programs. Social Security, Medicare, even wars are all underestimated in the beginning and always need massive injections of funds after that. 
 
So, what does this have to do with a bridge? Well, a lot. If you thought that the cash for clunkers program was a good idea, there is a very nice bridge in Brooklyn, built in the late 1800s, beautiful style, and I will let you have it at a deep discount!
 
In our last entry we discussed the necessity of savings for economic growth. It is savings which buys capital goods so that we can have consumer goods in the future. It was also pointed out that there needed to be enough savings to repair and replace current capital equipment just to consume at current levels, and that in order to grow economically, we must save more than that.
 
Having said that, it was shown that the United States does not save. We have a negative savings rate. But that does not seem to affect us very much. Sure, there is an economic downturn, but even before this recent recession we did not save, yet our lifestyles did not seem to suffer. Why is that if savings is so important?
 
The answer is that the savings had to some from somewhere. And if it did not come from the United States’ citizens, where did it come from?
 
We live in an international economy. Some countries actually save, like China. China, and nations like her, has more savings than it needs, so the people with savings look for places to put their money. Since China has a lot of savings floating around, its interest rates are naturally low (unlike ours, which are made artificially low by the money creation power of the Federal Reserve). If a person in China with savings is looking for a place to invest to make a decent return, he looks outside China to get a better return. One place is the United States. So, for example, Luckey’s Economics Textbook factory needs money to expand. But there is no savings in the United States—Hello, China! So the Chinese investor gets a higher return from investing in Luckey’s Textbook factory than he would get investing in something in his own country. So I borrow the money from him, and expand my business. But here’s the catch. I now owe a guy in China, say, two million bucks. And it’s not only me. Everyone who needs money for business purposes in the Unites States, and cannot find someone’s savings to borrow, must go to another country with savings to get a loan. So other countries own our stocks, bonds, and other securities. 
 
It is the same with government debt. Our government has so saturated the bond market with its bonds, trying to live with a gigantic deficit, it has to go overseas to sell government bonds. In addition, the government and private corporations must increasingly offer higher and higher interest rates to attract foreign investors to take our bonds. US debt held by foreign countries is now $3.4 trillion. Interest on the Federal government debt alone is currently $261.6 billion. So, in other words, the Federal government is paying $261.6 billion dollars per year of your tax money just to pay the interest on the government bonds it has floated because we all want government services and do not want to pay the full price for them, and the companies in the US are paying a fortune to foreign citizens because the rest of us cannot get ourselves to save. 
 
If you think that this is merely an economic problem, you’d better think again. The inability to live within one’s means is symptomatic of a character flaw whereby we think that we are entitled to more than we produce. Your salary is based directly on what you produce. When you spend more than you make, you are saying that you are entitled to what your production cannot buy. Sometimes this is necessary; for example, you can invest in an education, because having that education will pay off in higher wages, i.e., higher productivity, and you can pay the debt off and live at a higher standard. Also, many people spend money helping the poor or their young, recently married children who have special problems. But many of us are not that way. I did a study of the bankruptcy courts in Virginia years ago, and you would be surprised how many uneducated, marginally employed couples bought a big pickup truck that they could not afford, and then declared bankruptcy just to keep the truck. This is pathetic.
 
Now, you go and examine your conscience. If you are not saving merely because you want stuff, make a new budget (if you ever had one), put savings in it, and do us all a favor and live by it.
 
Dear Dr. Luckey, I realize that savings is good for the individual—for contingencies, vacations, retirement—but why is it good for the nation as a whole?

This is an excellent question, and one which very few people ask themselves, or know anything about. John Maynard Keynes, an economist whom I have roundly criticized in these pages, believed that there was a “paradox of thrift,” that is to say, that savings pulled money out of the economy, so that the things which companies planned to make would not be sold, people having saved money that should be spent on consumption. This would cause continued economic recession as companies would have unsold goods, would have to lower prices, and would lay off employees. This process would continue year after year, unless the government would, by deficit spending, put extra money in the hands of the consumers to offset the savings. This is utter nonsense, but has suddenly become popular again since Obama was elected to the presidency. Look at the media coverage of Christmas time—retail sales, this; retail sails, that. It is as if the whole country depended on retail sales.

Let us go back in time in the production process and ask ourselves where the consumer goods came from in the first place. St. Thomas Aquinas pointed out that what is first in intention is last in execution. In economics, this means that the desire to have and provide a consumer good is the last stage of a process that brings into existence resources that were not necessarily related before. These “higher level” goods include things like taking iron ore out of the ground, which no one would do just because they were bored, but they would do if they were paid for doing it, because the ultimate goal of the ore is the frame of an automobile, or some such consumer good. It includes transportation, factories, machinery engineers, machinists, and on and on. 
If a nation spent all its money on consumer goods today, what would they have left for tomorrow? Nothing. This means that in order to have consumer goods in the future, we have to have capital goods, goods used to produce consumer goods in the future, today. The capital goods are those mentioned in the last paragraph. On the face of it, money must be spent just to keep the current stock of capital goods functioning at current levels, providing the same amount and quality of consumer goods coming tomorrow as we had today. That means something has to pay for the wear and tear of the equipment, and replacement when something is no longer functional. This is called depreciation and purchase of new equipment to replace the old. This also applies to people. Workers retire, die, move to other jobs, need retraining, etc. It costs money to replace and train workers, and this must be done all up the line, back to the iron mine. Where does this money come from, consumption? Well, certainly companies use most of their profits, if they have had any, to do all this equipment maintenance and personnel replacement. That is corporate savings. But frequently, the company has to go to the capital markets, i.e., the stock and bond markets, and banks, for money for this purpose. Where does this money come from? Our SAVINGS! 

When you save money in a commercial bank, or put money in corporate bonds, you make that money available for companies to borrow. When you buy stocks, a company can get money from an investment bank based on the current price of their stock, which will form the basis for an initial purchase option, where the bank will give (not lend) the company money based on the probable price they will get offering new stock on the market. So this all comes from savings—your savings and mine. No savings—no replacement of aging equipment and personnel.

But, there is more. Competition between companies in the same industry forces companies to update and improve their products. If Company A sits back and relaxes, content merely to replace their equipment and current employees if they leave, another competitor, Company B, in its attempt to get more sales, will spend money, first on research and development of new and improved products, and once tested, it will spend money on the production of said products. Company A knows full well, unless their leadership is incompetent, that they have to do the same or go out of business. Where do Companies A and B get the money to do this? SAVINGS. How do these companies get you to save? They do so by promising a return on your savings. Take a bank, for instance (don’t really take a bank—you’ll go to jail). If you put your money in a savings account, you are promised, say, 5% interest. The bank lends that money out to a company expecting, say, a 10% return. The bank keeps 5% and gives the other 5% to its depositors. If you buy a corporate bond, you are lending the company money at a promised return. If you buy stocks, there is no guaranteed return, and that is why research of a company is necessary prior to buying stocks. The purchaser, or his broker, must take an educated guess, based on past history and current prospects, as to what the future stock price will get to over a certain time, in order to make the purchase worth while. All of this is done with savings.
Well, how do taxes affect the savings picture? Taxes reduce the amount you and companies have available to save. Since the American government never saves anything, but is in an $11.6 trillion-dollar debt, national savings is in negative territory. In addition, our propensity to consume on credit means that we have no private savings. Since 1983, the citizens of this country have reduced their savings rate from about 11% of their income, to about -3% in 2006. We are dissaving. Now much of this occurs because taxes are eating up our salaries, so just living at a constant level of comfort is becoming more expensive. Also, inflation, caused by the government’s expansion of the money supply and deficit spending, causes prices to rise without any increase in productivity. I believe that our tendency to go into private debt is caused by these phenomena. Take my case, for example. We were well off but by no means millionaires. But my dad gave me the checkbook when I had to pay tuition at my private  Catholic university, and would just ask me what amount I wrote the check for. I never had to take out a loan, nor did I have to have work-study. Who can do that any more?

Savings is important in your life. The more of your income you spend now, the less you will have to live on during retirement. The more you save now, the better you will live in your retirement. Things like Social Security tempt people not to save for retirement. I used to sell retirement plans. So many people told me that they did not need any retirement plan because Social Security will take care of them.  Those clients of mine who are still alive, if they did not heed my advice, are probably on welfare today. 

God expects us to use our heads to provide for ourselves. It is true that the success of our plans depends totally on God, but we are expected to have plans and carry them out in the first place.

This reminds me of a cute joke illustrative of this point. There was going to be a great flood in the midwest United States, and there was a man sitting on his porch. A National Guard jeep came by and the soldiers in the jeep tried to persuade the man to go with them. But he replied: “God will save me.” Well, then the flood waters were up to his second story window when a National Guard boat came by and tried to get him into the boat. He replied: “No, God will save me!” Finally, he is sitting on the pinnacle of his roof and a National Guard helicopter comes and throws him a line. He rejects the attempt to save him, saying again: “God will save me.” The man drowns and goes to the judgment. He says to God, “I had such faith in you, why didn’t you save me?” God replied: “I sent you a jeep, a boat and a helicopter; what more do you want?”