The ten cannots, 1/10
You cannot bring prosperity by discouraging thrift
This is a new series on the ten cannots.
The following ten bullet points are economic “cannots” based on historical precedence. To some extent, these cannots capture the spirit of the Founding Fathers of the US. They stem from Rev. William J. H. Boetcker (1873-1962), an American religious leader who lectured around the United States about industrial relations at the turn of the twentieth century. He authored a pamphlet titled The Ten Cannots in 1916. At one time, President Ronald Reagan used them in a speech, erroneously attributing them to Abraham Lincoln.1 Margaret Thatcher also picked from this list. So, this new series might have a teeny-weeny slight libertarian bent. The bias is towards the free movement of the Five Bs (businesses, brains, bucks, blueprints, and bodies) and warns of the policies of the Five Cs of economic folly (Castro, Che, Chavez, Corbyn, and Cortez). In the Age of Ridiculousness, for the administrations of Trudeau, Scholz, Starmer, and Kamela Harris/Jill Biden, the “cannot” is replaced with “can”, and the list becomes a to-do guide.
Ridicule is not the main purpose of this series. The main purpose of this new series is to examine whether these 1916 cannots still hold up to some 2024 scrutiny and applied wisdom. After all, this list is more than 100 years old. Some of the applied wisdom, though, as we shall see, is much older.
You cannot bring prosperity by discouraging thrift
“The less prudence with which others conduct their affairs, the greater prudence with which we must conduct our own affairs.”
—Warren Buffett2
Thrift, often synonymous with frugality and prudence, is a fundamental principle in personal finance and economics. It refers to the careful management of resources, avoiding waste, and prioritizing savings and investment over unnecessary expenditure. The notion that prosperity cannot be achieved by discouraging thrift is deeply rooted in economic theory and applied wisdom. Encouraging thrift not only fosters individual financial health but also contributes to broader economic stability and growth.
“Always tell the truth. That way, you don’t have to remember what you said.”
—Mark Twain
Thriftiness promotes financial discipline, which is essential for both individuals and nations. For individuals, thrift translates to better financial management, leading to a higher propensity to save and invest. By living within their means, individuals can accumulate savings, which can then be invested in productive ventures, such as education, home ownership, or business creation. This accumulation of capital is crucial for long-term financial security and wealth creation.
“We don't have to be smarter than the rest. We have to be more disciplined than the rest.”
—Warren Buffett
From a macroeconomic perspective, high levels of savings can lead to increased investment. When individuals save, banks and other financial institutions can lend these funds to businesses for expansion and innovation. This process, known as capital formation, is vital for economic growth. Thus, encouraging thrift can lead to a virtuous cycle of savings, investment, and economic expansion.
“None of the U.S. expansions of the past 40 years died in bed of old age; everyone was murdered by the Federal Reserve.”
—Rudi Dornbusch (1942-2002), German American economist3
Conversely, discouraging thrift can have detrimental effects. When individuals are not encouraged to save, they may overspend and accumulate debt. High levels of personal debt can lead to financial instability, making individuals and households vulnerable to economic shocks. Moreover, excessive consumption without corresponding savings can lead to a lack of investment in productive assets, stunting economic growth.
“Soaking the rich would not only be profoundly immoral, it would drastically penalize the very virtues of thrift, business foresight and investment, that have brought about our remarkable standard of living. It would truly be killing the goose that lays the golden eggs.”
—Murray Rothbard (1926-95), American economist 4
On a broader scale, if an entire society shifts away from thriftiness, the economy may suffer. Consumer-driven economies might experience short-term boosts from increased spending, but the long-term consequences can be severe. Without sufficient savings, there is less capital available for investment. This can lead to lower productivity growth, fewer innovations, and a weaker competitive position in the global market.
While my economics books from the 1980s and 1990s used Egypt and Argentina as colossal economic failures, today, Venezuela gets a lot of the loser’s limelight. In the past few decades, Venezuela’s government, under both Hugo Chávez and Nicolás Maduro, implemented policies that de-emphasized saving and private investment, instead focusing on extensive state control of the economy.
Rampant government spending, particularly on social programs and subsidies, without corresponding productivity or savings, led to severe inflation. This eroded people's savings and disincentivized thrift, as saving in the local currency (the bolívar) became futile. People rushed to spend money as quickly as possible because their savings would lose value rapidly.
“Thanks Hugo Chavez for showing that the poor matter and wealth can be shared. He made massive contributions to Venezuela & a very wide world.”
—Jeremy Corbyn, @jeremycorbyn, Twitter, 5 March 2013
The government nationalized or heavily regulated many private industries, especially in oil and agriculture. This discouraged private investment and led to reduced productivity, contributing to the broader economic collapse.
Instead of encouraging savings or investments that would contribute to long-term economic health, the government gave subsidies and welfare programs funded by oil revenues. When oil prices collapsed, the country had little in the way of savings to fall back on, leading to a major financial and humanitarian crisis.
“If the world were a logical place, men would ride side-saddle.”
—Rita Mae Brown (b. 1944), American writer
These policies, which discouraged personal and institutional savings, combined with excessive spending, led to Venezuela's current economic struggles, showing how discouraging thrift can undermine long-term prosperity. If the world were a logical place, European economies wouldn’t be making the same mistakes. Below is a comparison by two countries, the first is famous for its thrift, the other for quite the opposite. Singaporeans must work around 12 minutes to afford a local Big Mac with their after-tax income. Italians need to work more than twice as long.
Italy could be the best place on earth, you know, the climate, the food, the wine, Ornella Muti, etc., but somehow the last 1-2 generations screwed up weren’t able to unfold Italy’s full socio-economic potential.
“Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”
—Mario Draghi, Italian banker, bailing out Italy with German money in 20125
Despite its high debt-to-GDP ratio, Singapore is a good example of fiscal prudence and thrift because the nature and context of its debt are very different from countries like Italy. Singapore's government debt is mainly domestic, much of which is in the form of bonds issued to fund long-term social and infrastructure projects backed by substantial reserves. The government runs consistent budget surpluses and borrows as a means to manage its monetary policy and stimulate growth, not out of necessity. In contrast, Italy's debt is often more problematic because it relies more on external borrowing to cover fiscal deficits. Singapore has substantial reserves and assets managed by sovereign wealth funds (like GIC and Temasek Holdings). Its debt is more than offset by its accumulated financial reserves, giving it a solid net favourable asset position. On the other hand, Italy has high public debt without equivalent reserves, making it more vulnerable to financial market fluctuations. Singapore’s debt is sustainable because it has a stable and diversified economy, high credit ratings, and sound fiscal policies. Italy, with a more stagnant economy, faces higher borrowing costs and risks associated with its debt.
“Had we not become streetwise, we would have been clobbered.”
—Lee Kuan Yew (1923-2015), Founding Father and prime minister of Singapore6
Singapore is known for its disciplined approach to government spending and for maintaining a balanced budget over the long term. Italy, on the other hand, has struggled with fiscal imbalances, high public spending, and slower economic growth, leading to chronic budget deficits. Whether Meloni is to the 2020s what Thatcher was to the 1980s needs to be seen.
“Let us never forget this fundamental truth: the state has no source of money other than money which people earn themselves. If the state wishes to spend more it can do so only by borrowing your savings or by taxing you more. And it is no good thinking that someone else will pay – that ‘someone else’ is you. There is no such thing as public money; there is only taxpayers’ money.”
—Margaret Thatcher7
Historically, societies that have valued thrift have often seen significant economic growth and stability. For instance, post-World War II Japan and Germany emphasized savings and investment, leading to rapid economic recovery and growth. Their cultural emphasis on thrift helped build robust economies that could invest in technology, infrastructure, and education. Germany might have abandoned its successful post-WWII path for political ideology by “giving up” the Bundesbank in 1998. Germany and Italy were long opposites in terms of thrift.
“Daily experience proves clearly to everybody but the most bigoted fanatics of socialism that government management is inefficient and wasteful.”
—Ludwig von Mises 8
During the late 20th century, the United States experienced periods where consumer spending was heavily promoted at the expense of savings. This led to increased household debt levels and, eventually, financial crises, such as the 2008 subprime mortgage crisis. These crises highlighted the dangers of neglecting thrift and over-relying on consumption-driven economic growth.
In today’s globalized economy, the importance of thrift remains relevant. While consumer spending is crucial for economic activity, a balanced approach that includes saving and investing is essential for sustainable prosperity. Policymakers can encourage thrift through various means, such as providing tax incentives for savings, promoting financial literacy, and ensuring stable and attractive savings instruments.
“If Europe today accounts for just over 7 per cent of the world’s population, produces around 25 per cent of global GDP and has to finance 50 per cent of global social spending, then it’s obvious that it will have to work very hard to maintain its prosperity and way of life. All of us have to stop spending more than we earn every year.”
—Angela Merkel, Financial Times, 17 December 2012 9
Prosperity, both at the individual and societal level, is deeply linked to the principle of thrift. By fostering a culture of prudent financial management, savings, and wise investment, societies can ensure long-term economic stability and growth. Discouraging thrift, on the other hand, can lead to financial instability, excessive debt, and stunted economic progress. Therefore, it is clear that you cannot bring about lasting prosperity by discouraging thrift. Instead, by embracing and encouraging thrift, societies can build a foundation for sustainable economic success.
Trivia:
“Dad, what does MMT stand for?”
“Monopoly Money Theory, son.”
Boetcker’s points reflect his beliefs in individual responsibility and self-reliance, ideas often (though not always) in alignment with Lincoln's values. However, Lincoln himself did not produce this list, nor did he express these ideas in exactly this way.
Floyd Norris, Market Place; An Expert Shuns Risk Arbitrage, New York Times, 28 March 1989.
As quoted in: After Record-Long Expansion, Here’s What Could Knock the Economy Off Course, by Jon Hilsenrath, WSJ, 3 June 2019.
Murray Rothbard, For a New Liberty – The Libertarian Manifesto (1973).
Speech by Mario Draghi, President of the European Central Bank, at the Global Investment Conference in London, 26 July 2012. By signalling that the ECB would do "whatever it takes" to preserve the euro, Draghi helped lower borrowing costs for Italy and other struggling Eurozone countries, indirectly reducing their reliance on direct financial bailouts. Germany was the largest contributor to the ECB’s capital.
Allison, Graham, and Robert D. Blackwill (2013) "Lee Kuan Yew - The Grand Master's Insights on China, the United States, and the World," Cambridge, MA: MIT Press, p. 133.
Speech to Conservative Party Conference, Winter Gardens, Blackpool, 14 October 1983.
Ludwig von Mises, Economic Freedom and Interventionism, Mises Institute, 1990.
Contrast to: “The United States has 5% of the world’s population, 25% of its incarcerated people, and almost 50% of the world’s lawyers.” —Conrad Black, The Sun, 4 October 2012.