Seltzer and Evaporating Clouds

I've had the great pleasure over the past year to work on a key strategic project with some consultants from the Goldratt Group (including a trip to Amsterdam last year (to work directly with Eli Goldratt - see Jamming With Eli).

David Leonhardt's Economic Scene column in today's New York Times (To Spend or to Save? Trick Question) addresses the conflict many people are feeling right now between spending and saving; the paradox is that we need spending to improve the state of the economy, but we need savings to reduce personal debt, recapitalize banks, etc. Given all that, it's hard to know what to do, and the natural instinct is to hunker down and stop spending any more than is absolutely necessary. Leonhardt writes:

It’s your fault. Part of it is, anyway. You, the American consumer, spent too much money. You bought too much house, took on too much debt and generally lived beyond your means. Your free-spending ways helped cause the worst financial crisis since the Great Depression.

And now you’re going to have to do your part to end the crisis. How? By spending. Enough already with the saving that many of you have suddenly begun doing. This very moment, Congress and President Obama are preparing to send you a tax rebate, to inspire you to stimulate the economy. So go out and stimulate. Spend as if the future of your country depended on it.

John Maynard Keynes, the great 20th-century economist, would have appreciated the apparent absurdity in these mixed messages. He coined a phrase, “the paradox of thrift,” to point out that what was rational for an individual during hard times — saving money — could be ruinous for an entire economy. Eventually, many of the savers may end up out of work because everyone else is saving, too.

It’s enough to make you wonder what exactly you’re supposed to do. At his news conference on Monday night, Mr. Obama was asked directly whether people should spend or save their rebate checks. He ducked the question.

Goldratt has a way of looking at these kinds of conflicts: a thinking process called an evaporating cloud. I liked Leonhardt's approach to breaking the conflict between spending and saving: spend, but spend on things which represent investment (such as energy efficiency home improvements and a seltzer maker (you'll have to read the article....). Check it out!