A Simple Test For Economic Zombie Determination
The test to determine whether you or your friends are zombies is simple. Answer the following question:
How would you live if debt/credit were outlawed? The economic zombie has difficulty comprehending the question, no less answering it.
If you or your friends do, then you are well on your way toward full zombie-hood, if in fact you are not already there.
The question is relevant because it identifies those too ignorant to comprehend the fact that you cannot consume more than your income will support, at least not forever.
Income for a period determines the amount you can spend that period, or it would in the absence of debt or savings. Borrowing this period enables spending to exceed income this period. But borrowing is nothing but advancing consumption that otherwise would occur in a later period. Whatever is borrowed raises consumption this period but reduces it next period when some of the income earned then cannot be spent because it must be used to service the prior debt. Total consumption for both periods is lower than it would have been without the borrowing. That is due to the paying the carrying cost of debt, interest.
If you cannot understand this concept or you believe that you can nullify it by borrowing again next period, you qualify as an economic zombie. If you answered that you could not live if debt/credit were outlawed, you are an economic zombie, and perhaps also an economic idiot. Osavi Osar-Emokpae colorfully described debt:
And don’t tell me debt is not a big deal. Debt will cut off your legs and laugh at you as you grovel in the dirt begging for mercy. If you don’t need it, don’t get it. If you can’t afford it, don’t get it. If you’re already in debt, get out quickly. If you think you’ll never get out, you’re right, you won’t.
If you are using your credit cards as loans (i.e., you are not paying in full the balance each month) then you are zombie-qualified.
Economic zombies are not born. They are made. They choose their lifestyle. Behind every economic zombie is someone who believes he should live better than his abilities allow. That may work for a time. Then the Osar-Emokpae quote takes over.
The reality is that negative borrowing, saving, should be occurring every year. Man has a finite lifespan and a finite earning career. The latter is shorter than the former. Part of life is to be responsible enough to prepare for the future when income stops. Borrowing is a sign of immaturity and ignorance. Occasionally borrowing is necessary to meet an unforeseen emergency. If it is routine, then you are an economic zombie!
1 comment:
This is more than a little bit misleading. Both savings and loans are part of the same economic function: the gathering of capital to support the large projects that require it.
Without loans, big capital-intensive projects like factories, dams, highways, and office buildings don't happen, or at least don't happen very often.
That said, savings is EQUALLY important, or perhaps more important, because what a debtor is borrowing is not currency but the resources that the currency can buy. Savings are deferred consumption, meaning goods produced but not consumed. Insufficient savings means economic downturn in the near future.
The key here is that PRODUCTION is the important function that the economy is meant to serve, not CONSUMPTION directly. Hence the major error of Keynesian economics.
They enshrine consumption instead, leading to low savings, which leaves them currency inflation as the only tool to attempt to prevent recessions with. But this creates bubbles, which WILL pop once the limit of saved resources has been reached, no matter how much more currency is pumped into the economy.
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