The Problem With Doing With Less

During the Great Depression, people learned to be frugal and save money. Once the depression was over, they continued that frugality and spent less and saved more for many years to come.

Today, this country is laboring in a recession with high unemployment. Once again, Americans are saving more and spending less. Every day that this recession continues on, today's Americans, like those of the Great Depression era, are being ingrained with the same sense of being penny wise and probably won't return to their lavish spending habits of the past; even after the recession is well over.

At the same time, businesses are learning a similar lesson. They are learning how to spend less and how to make more products and deliver more services with less people. This morning, the nation's Productivity Report came out and business productivity increased by an astounding 6.9% from last year (Click to See Full Story from Reuters: Jobless claims fall, productivity surges). This is worrisome. Like those Americans who have learned to save and probably will continue to spend less after the recession is over, American businesses, too, are less likely to hire back as many workers when the good times return.

This is why, time and again, employment is the last to recover in any depression or long term recession. We blew a whole year with a failed stimulus package. In that year, businesses were forced to learn how to survive with less people and productivity soared. Because of the failed stimulus package and because of that lost year of recovery, business may have acquired productivity habits that could keep people unemployed for a very, very long time.