The steep drop in the price of oil in July 2015 was a concern for traders.
Drillers and other energy companies comprise a significant portion of the
S&P 500 index. “The upside to falling oil is that all the money that
drivers are saving at the gas pump should mean more spending by them at stores
— and a faster-growing U.S. economy. But Americans are choosing to pay off debt
instead of going shopping.”[1]
Is this a bad thing? In reckoning it as such, Wall Street analysts are missing
the big picture, even financially.
Gasoline at a station in January 2015. (ABC News)
To go on a shopping spree when in significant consumer debt is, I submit,
foolish and perhaps even reckless. The mentality erroneously treats debt as
permanent rather than something to be paid back. In this respect, the U.S.
Government has been a terrible role model, as Bill Clinton dedicated only half
of the surpluses in the late 1990s to paying down the debt. After his
presidency, the wars and occupations in Iraq and Afghanistan added more than $4
trillion to the government’s debt.
To urge consumers in debt to spend what they save on gas implies the same
mentality. Tim Courtney at Exencial Wealth Advisors, for example, says "Household
finances are growing more healthy ... but you want to see a pick-up in spending,
too."[2]
I submit that such additional spending at the expense of reducing debt is
detrimental to a person’s financial position. Not only is the debt not reduced,
but also the habit of spending while ignoring the debt is reinforced. Consumers
regaining their pre-debt position is good for Wall Street, moreover, because
the financially solid position puts the consumers in a better position to spend
beyond the short term.
Even so, using discretionary income to reduce household debt is said to be
frugality. The following passage from The Associated Press is a case in point,
and even makes explicit the interests behind the perspective. “The new
frugality helps explain why the biggest long-term driver of stock prices — corporate
earnings — have been so disappointing lately. In the second quarter [of 2015],
companies in the S&P 500 grew earnings per share just 0.07 percent from a
year ago, according to research firm S&P Capital IQ.”[3]
That which is behind disappointment can be expected to be treated harshly
rhetorically. Hence, responsible efforts to reduce debt is “frugality,” which
has the negative connotation of cheapness.
I submit that debtless consumers are worth more societally than are
continuously increasing corporate earnings (and consumer debt). The Associated
Press could have reported that consumers were being responsible while over-reaching
corporate expectations were taking a hit. How the media decide to report a
story does indeed have an impact not only on consumers and company managers,
but also the society as a whole—even in how it votes. In the case of the U.S.,
especially relative to the E.U., business interests can be said to have a
disproportionate influence societally.
[1] Bernard
Condon and Ken Sweet, “Why
Stocks Are Tumbling 6 Years into the Bull Market,” The Associated Press,
August 23, 2015.
[2]
Ibid.
[3]
Ibid.
