Wednesday, November 04, 2020

How low interest rates and debt, versus savings, makes people and business less flexible for adapting to climate change

Over the years of low interest rates, there hasn't been much incentive for people to save money. Instead, folks assume that the road to building wealth is not saving money, but going into debt. Buying a house, starting a business, or what ever.

Problem is, this straps one into having to make payments on that debt each month.

If one were, instead, to build wealth by saving extra money in the bank, it could mean having more flexibility in the household budget. Flexibility that's needed to address climate change, for instance.

Something like a carbon tax can increase the cost of gasoline and energy. If one has a big burden of debt payments, it's harder to find extra money. On the other hand, if one is building wealth by putting money in the bank, it's easier to just cut back, temporarily, on the amount one is putting in the bank in order cover the higher cost of energy.

It's easier to just save a little less, rather than default on a debt payment.

Over time, everything changes. Down the road, one could get a raise so they could go back to saving more money again; even after the carbon tax were to go into effect.

Another solution is that a transit line could become available, as payed for by the carbon tax. The person facing more expensive gasoline, in the short run, might save more after switching to using transit, rather than driving, in the long run.

All these changes don't happen overnight. Carbon taxes and then the availablility of better transit don't always happen simultaniously. Over time, economic conditions keep ebbing and flowing. What seems like a setback, in the short run, can become a blessing later on.

Savings allows for more flexibility, in household budgets, than having a large burden of debt would allow. Low interest rates, in the private sector, encourage too much debt and not enough savings.

Low interest in private sector is designed to spurr employment, but it often just pushes up the cost of existing assets. For example, existing housing gets more expensive, especially if new construction is restricted by things like single family zoning. Low interest rates are designed to spur new construction and job creation, but local restrictions can stand in the way.

Meanwhile, low interest rates might be good in the government sector. Since it seems like the federal government is more and more dependent on debt, rather than taxes, government spending benefits from low interest rates. It keeps jobs, such as police, on the payroll. It Props up unemployment benefits, keeps people on health insurance and can create jobs in infrastructure development, scientific research and so forth.

Maybe we need zero interest on government borrowing. Print the money. Don't worry about government debt, at least until general inflation becomes apparent.

Today's inflation seems mostly confined to certain sectors; such as housing costs. More and more, we need government assitance help the majority of people pay for their rising cost of living. Without government assitance, there is lots of suffering. Also it could eventually lead to deflation. Rents can only remain high while there is a market to afford it.

Personally, I've never gone into debt. Buying a house would be out of my reach. I don't drive, so car payments are not an issue. I've always saved up for my consumer purchases; such as buying a computer. Fortunately, my rent has been reasonable over the years and I've had no big medical bills. I'm not raising a family either.

Even though my income has been fairly low, I've always had some extra money. Haven't had to live paycheck to paycheck. I could have saved more of that money, but have tended to just let it sit in my checking account. Little incentive to save.

Instead, I've usually spent it, before the year was out, by going on bike trips in the summer. Camping and motels can take most of my extra money. The trips have been worth it, however.