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Comment by Barrin92 | Hacker News Reader

the covid-19 situation I think really exposes how mad it is that as a society it's normal if not encouraged to live on debt or one or two paychecks away from being broke. Of course, a lot of people don't make enough to even save much more, but even among more affluent people in particular in the US it seems common to live a lifestyle that just about only works if you're at 100% income.

Just for my own peace of mind, I started saving enough to be without work for a year or so, use a debit card instead of a credit card and rent. Here in Germany, this is more common than in other places, but still, I wouldn't even want to live with constant debt on my shoulders.

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You don't realize that this economy - levered to the hilt - NEEDS the consumer to spend money they don't have to keep it going. If the American consumer started developing financial discipline starting tomorrow, that's incredibly bearish for stocks. (Of course, that's probably a good thing for the long run)

Except that savings for tomorrow would probably end up in the stock market. Otherwise inflation kills them.

So I would be interested to know would happen here.

Inflation doesn’t “kill”. You lose a percent or two a year. Put the savings in a no-penalty CD for emergencies and even that gets better.

> Except that savings for tomorrow would probably end up in the stock market.

For far lower returns. With reduced demand, there's not much for that extra money to do. To the extent investment drives growth it's when it goes into innovation (R&D) or if businesses have demand but are capital constrained (and I suspect even that's more like speeding up than creating growth, exactly—you just get 5% growth now instead of 2.5% over two years, or whatever). Sure maybe you could spend it on advertising and marketing but all that can do is get us back to "people spend too much".

How does one draw the line between necessary marketing/sales expenses and unnecessary ones? Even some of the most "innovative" companies like Apple spend billions on advertising. I don't have an MBA but it seems pretty much impossible to sell new products without an advertising budget.

Right but if the premise is “there will be lots of investment because people are spending less and saving more” then all that invested money can’t go into marketing or advertising without getting right back to a low-savings society, unless that spending is ineffective. So that leaves R&D I guess since there’s not much else for that extra money to do. Plus lower returns on equities.

As the stock market becomes "overvalued" some investors pull their money out and invest in other "undervalued" assets. Real estate has been a major asset of choice over the past decade. Perhaps that will continue or some new asset will come into vogue.

US consumers really aren't so bad.

Savings rates have been inching up ever since bottoming out around 2005.

https://tradingeconomics.com/united-states/personal-savings

Now try 1) plotting that against household debt, 2) and against other countries.

Household savings (latest): https://data.oecd.org/chart/5VU5

Household debt (latest): https://data.oecd.org/chart/5VU6

You can play with the charts to plot trends for as long as the OECD have data for each value. The position of the US isn't great, but it isn't terrible either.

These are aggregate metrics - in a country like the US that's in top 5 in terms of income gini-coefficient, I suspect medians will paint a very different picture.

It's like a lemon being squeezed harder and harder. As long as people have some money they can spend - no matter where the money is actually coming from - our economy will try to incentivize it and lure consumers into consuming.

That's why I find the idea of this system collapsing frankly quite amusing. Actually I hope for a complete break down of our economy. It's a perverted monster which deserves to go down.

> If the American consumer started developing financial discipline starting tomorrow...that's probably a good thing for the long run

Don't be so sure.

https://en.wikipedia.org/wiki/Paradox_of_thrift

I think discipline != penny pinching

There's this thing that people have finally been talking about--slack in supply chains. It's basically the same idea as people living paycheck-to-paycheck. 95% of the time, it's much more efficient to run that way because inventory isn't free. The problem is there's no buffer against supply chain disruptions.

Companies are always going to try to squeeze out those inefficiencies. This is a place markets will fail, so it's somewhere for governments to step in. Maybe that means government stockpiles, maybe it means governments pay companies to have excess inventory of certain critical products.

It's the same for personal finances. It's actually inefficient for people to save for a rainy day because everyone has a rainy day fund when only 5% of people need it in a given year. This is where you want to have a strong social safety net so that people can spend.

I don't think the situation's "mad," it's just that the US has a weak social safety net and people are encouraged to spend.

> It's the same for personal finances. It's actually inefficient for people to save for a rainy day because everyone has a rainy day fund when only 5% of people need it in a given year.

I get why it’d be inefficient to store inventory, but why is it inefficient to save? You get paid for it and you’d want to have money lying around anyways for retirement.

Retirement is probably the best example. If you have to save for retirement (so no SSI), you need to plan for your 95th (or 99th?) percentile life expectancy/spend rather than your mean expenses. Since retirement is about doing what you want and not just working for money, that means you have to work extra years so that on the off chance you make it to 100, you still have money.

Came from a third world country to here USA, I was really surprised that a lot of people are living paycheck to paycheck and debt is encouraged, even among people who are middle class. In my 3rd world country, we always are encouraged to save and live beneath our means. But then I guess that's why USA economy is better than my 3rd world country's economy because the money revolves quickly?

Partly but there are 100s if moving parts that make USA as big as it is. You also have to factor in their history of events that got them here

I don’t think it’s mad. We are just properly leveraged and operating with an acceptable amount of risk. Someone who leverages credit/debt and has proper but not huge (1 year) safety nets will be far better off over their life than someone who doesn’t leverage credit and has large or no savings.

It’s the same as choosing invests - risk (stocks) is better than low risk (bonds) for most people. If you can tolerate risk you should if you want more returns.

> We are just properly leveraged and operating with an acceptable amount of risk.

I think that's OP's point. Every word in this sentence is subjective. Throwing around concepts like leverage debt and risk exposure is a way only a mid/well-off person would frame the discussion.

For the other 80% of the US, this statement is madness.

That is fair. Good perspective check.

>Someone who leverages credit/debt and has proper but not huge (1 year) safety nets will be far better off over their life than someone who doesn’t leverage credit and has large or no savings.

This is only be true because the US government keeps borrowing from the future to inflate today. But I agree, you don’t bet against the house, and the house is dead set on making sure asset values stay high.

Living pay check to pay check is considered risky in a lot of country, but due to the high available credits from credit card or personal loads, ppl in US don't feel like the need of saving. This pandemic could be the start of more saving.

This makes me wonder what the differences are in various countries that help skew those numbers one way or the other.

I know in the US, how much debt you have has zero bearing on your ability to qualify for welfare programs, but savings can negatively impact your ability to qualify. So owing less doesn't qualify you for more aid, but having too much savings can screw you out of benefits in an emergency situation.

Some countries have programs that provide health benefits just because you exist. In the US, a lot of our benefits programs are "needs based," which means you have to qualify for aid and one of those qualifications is that you don't have savings because as little as $2000 in the bank can disqualify you.

I don't think it's as one dimensional as the above comment seems to suggest. But I bet there are inherent incentives in the US to not bother to save for various reasons. It would be interesting to see that investigated in earnest.

Interesting. I didn't know the US aid depends on the saving. How does govvernment know how much saving each person has? There's no formal process to report savings. On the other hand, the tax reporting would include annual income, which I thought is how most of the aid looks at. For example, the latest $1200 won't distributed to ppl with high income.

The $1200 stimulus check is something of an aberration. You typically need to apply for things like food stamps, Section 8 housing or Medicaid (our government health insurance for the poor).

When you apply, you basically swear this is true to the best of knowledge and if it isn't you can be accused of fraud and potentially charged with criminal activity, or just have the money taken back in some cases. (My knowledge of the system is limited, but I was on food stamps for a while. Having something like $2000 in savings can disqualify you, iirc.)

Thanks for the data point! That make sense.

It's just a reflection on hard it is to survive in USA. For most people, saving up that much money is a total luxury. Plus, having no real safety net from the government when you get sick or lose your job (like we do in EU) just makes it much worse.

> having no real safety net from the government

WHO pays for that?

Is there a free lunch?

I'd be willing to contribute towards it. In fact, feel free to take 80% of the funds I put towards the military into the safety net. In addition, take all of the tax money they take from me and give to fossil fuels as well and put it toward it. Then if you want to create a universal health care, feel free to take my monthly contributions that I make towards health insurance.

In addition, who is paying for the trillions we are pumping into boeing and the airlines right now. We always have money for war and well connected companies but never have enough funding for basic human decency.

80% of the military budget won't cut it though. Social safety nets cost a lot of money.

Yes, the US spends ridiculous amounts on the military (though on the other hand: that military is what gives them global dominance, which also is worth a lot of money), but just cutting that back won't give you a European style safety net. You'll have to increase taxes by a lot for everyone making more than the median, increase sales tax etc, essentially: pay more, not just reshuffle what you pay now.

That's fine, increase taxes. Universal health care would also lead to greater bargaining power in regards to drugs, drastically reducing cost. Maybe insulin wont cost 10 times in the US what it costs in other developed nations.

I already pay a large portion of my check towards health insurance, so does my employer. Route those funds towards Universal Healthcare. We can just call them taxes.

This should not really be an argument. We are discussing whether it is appropriate for us to pay a bit more on taxes or to allow people to die. I fall into the more taxes side of the debate.

I have good health insurance right now. Maybe a little TMI so be warned. I took my 7 year old kid to get something looked at a little over a year ago. He was experiencing burning when he urinated. They measured the flow of his urine and took a look at his genitals. Whole thing took ~15 minutes. I am still getting bills for it. Turns out he just needed to go to the bathroom more. Every couple months I get another bill for ~$40 for some other doctor or company. Its crazy. The whole system is designed to bleed people.

It's good to hear that you're happy with increasing taxes, but I'm afraid that most people in the US that aren't scraping by won't be quite as enthusiastic. Higher wages, lower taxes (on everything, from income to property to fuel/power to sales ...), it does help.

And make no mistake: Germany's public health system works only because of our parallel private insurance system. Doctor's can't run their offices with public insurance patients, because the amounts they can bill are strictly limited per quarter. They make the money they need to survive on the private insurance patients that pay ~2.5 times as much and will pay per visit/procedure, not per quarter.

Of course, this also creates a two-tier system with the private insurances getting the good treatment and everyone else having to wait quite a while to get an appointment, not getting quite a few treatments (e.g. eye glasses, unless you're basically legally blind).

You're on HN, so you're most likely a skilled knowledge worker. You'll be greeted with open arms in Europe. Vote with your feet, give it a try. I don't believe that you'll see substantial change in the US, too many people (regular people too!) profit from the individualist approach.

I hear what you are saying regarding a two tier system. The system is likely 2 tier though due to underfunding, lets fund it properly. In addition, even a two tier system provides for people to get affordable preventative care, something the US is lacking. By catching problems in the beginning you optimally prevent the massive costly issues that occur when an issue has been left unchecked and untreated.

As far as moving to another country, I have no need to, I make a large amount of money here and can afford the health care bills. I want the change for people that are not as advantaged as I am. I am willing to pay more so that they can get it.

As far as change in the US happening soon, I don't know. I think we are at an inflection point with more and more people desiring a change. People are losing their jobs right now and with it their health insurance. The election will potentially be a referendum on increased publicly available insurance.

I do very much agree with you on principle regarding a well functioning health system and e.g. catching things early, using preventive medicine etc. You'll find that it doesn't really work though. Having medical care does not magically turn people into rational patients that will take care of themselves (in fact, I fear the opposite: knowing you're covered no matter what may change your risk profile, which is known as Vollkaskomentalität in German, the mentality that creeps in when you know that everything is paid for).

The US healthcare system is a mess, I don't disagree. I don't believe there are any cheap & easy options to change it however. The grass is always greener on the other side of the Atlantic, but sometimes that's just because tales of success are spread around the world while the problems stay in the local news.

Actually there are valid arguments that one of the biggest problems with the German public health system is private insurance competing with the public ones. Essentially it's a licence for the private insurances to print money and siphon it from the system. They have the choice of only selecting the healthy and rich, so obviously they have much better risk distribution.

It also inflates health care cost, because the doctors use the private insurances to finance investments in expensive equipment. Talk to someone with private insurance, they essentially have fight off all sort of unnecessary tests even if they go in to get a flu vaccine. And no not every doctor needs an MRI in their practices. Also many other European countries have functioning health care without private insurances, which disproves the point they are necessary.

> Talk to someone with private insurance, they essentially have fight off all sort of unnecessary tests even if they go in to get a flu vaccine.

I have private insurance, and I've never had to fight off anything. The main difference is that I'll usually get an appointment on short notice and my provider pays for my glasses and good dental work.

And you're absolutely right, they aren't necessary for any system to exist, but they are necessary for this system to exist at this price. If doctors didn't pay the rent with private patients, they'd go bankrupt.

no, quick napkin math: the US military budget is officially $700B, but more thorough accounting pegs is at $1T+. $800B is roughly $2400 for every american per year, but if only 10% need assistance in any given year, that's a safety net of $24K each. that's not nothing, and it still leaves $200B+ for the military (which is still more than every other country and roughly equivalent to that of the #2 country, china, which itself is 4x larger than #3).

and that excludes the knock-on effects of encouraging economic risk-taking resulting from a functioning safety net.

I do believe you'll need significantly more than that, but would be happy to be convinced otherwise.

As for the encouraged economic risk-taking: we'd see that in Europe, wouldn't we? We don't. Maybe putting a damper on how much of the reward for taking the risk you get to keep decreases the willingness to take it in the first place.

We're seeing pretty similar effects: multi-generational poverty, very low social mobility (lower than in the US according to some studies). We're just "keeping the social peace" by doing more redistribution, it does not appear to change anything beyond the immediate redistribution.

I encourage you to look up the top bracket marginal tax rate in the US in the 50s and 60s, the period that is generally considered the golden area.

It's the idiology of trickle down economics that somehow instilled the concept of high taxes for the richest are bad, even though it was never based on evidence (just some handwaving theory why it should work) and in fact has been proven again and again to not work.

So yes short answer make the rich pay their fair share.

Trickle down economics plus globalization worked pretty well for very poor workers in other countries. They just bypassed US workers, because the sheer cost of living makes us uncompetitive in most industries.

@subhobroto Today is when you learn that facts and reality are not popular on HN.

The rest of the OECD seem pretty real, and mostly seem to do alright.

Fair enough, although if you look at my posting history, you will see I learned that years ago :D

Just look at my post about Youtube censoring COVID19 from yesterday.

I continue to post because among the 1000 downvotes, there's one person who emails me and we start on a great relationship together!

That 1 person makes all the noise and "You're posting too fast. Please slow down. Thanks." - which is what happens when you post highly flagged comments that stops you posting on here anything at all for hours on end, essentially silencing you, worth it :)

The taxpayers obviously. Funny enough, most developed nations manage it. Instead we choose to spend our money on extravagant military spending and massive subsidies to the wealthiest corporations and individuals.

"Government" implies taxes.

While we're paying high taxes here in Denmark (about 38-50% income tax depending on your bracket), we don't spend a lot of money on things like health insurance like you do in US.

While holding debt encouraged, I would argue the lack of a progressive social system is why people need to dip into credit cards at the rate they're doing.

In a country where a medical bill can bankrupt you or you need to work x3 min wage jobs to get by, it's hardly surprising that it's the case. Saving up $500 / month is out of reach for a significant number of Americans. So debt is the only way to do basic things such as car repairs or handle emergency expenses.

You can even see this with the COVID response, where European countries are paying 80% of salaries, whereas in the US you get a flat $1200 check, once. The entire system is just skewed towards the wealthy.

Everybody got $1200 though, and those that are laid off or furloughed get federal assistance as well if I understand correctly. Those 80% you read is for those furloughed in Europe, but nobody (at least here in Germany) just got "free money to stimulate the economy". And the so called Kurzarbeitergeld (literally short worker money) is part of the unemployment insurance which is about 2.5% of gross income (half is directly deducted and paid by the employer, half is paid by the employee).

There's no charity state here. Just pay for insurance, you can have that as well.

> use a debit card instead of a credit card and rent

This only helps those who cannot read or write spreadsheets, don't understand cashflow or otherwise are not aware of finance 101.

Credit is a tool and knowing and putting leverage to use is critical to success in life.

I save an average of 5% and sometimes upto 25% of my expenses through the judicious use of credit card rewards and promotions. Credit card companies are willing to take losses to have me as a customer and sign me up.

> how mad it is that as a society it's normal if not encouraged to live on debt or one or two paychecks away from being broke

This is a design parameter and not a coincidence.

A majority of current work is busy work - if the people doing it had some savings, they would stop doing that busy work.

The employer knows it, the employee knows it and they continue to do it.

Encouraging "money in, money out" keeps the hamster wheel rolling and the economy pumping money through the system.

Credit card companies are willing to take losses to have me as a customer and sign me up.

No, they are desperate to pretend they've shored up a failing business model, and so they must constantly lure in more potential victims. You are temporarily subsidized by these schemes, but don't come crying to us when you end up behind the curve in confusing and changing credit terms.

I agree with your claims about busy work and hamster wheels.

In the US a significant fraction of the wealth transfer from the poor via credit happens with these cards. The EU set a maximum limit for interchange fees, you'll notice such "amazing" reward cards do not exist there.

In the US what happens is the card company says to Bob's Hardware, you must accept all our cards or you can't accept any cards, and our "Premium Reward" card has 7% interchange fee so when Jimmy presents his "Premium Reward" card for a $1000 purchase, the card company takes $70 of that. Jimmy gets $50 and he think he's a genius for having this card. The hardware store needs to raise prices for all customers to allow for people like Jimmy. So when Sarah, whose crappy job barely is enough to live on buys a product that would be $500 the store charges $540. Sarah's card only has an interchange fee of $10 and Sarah gets none of that, but the shop owner is legally prohibited from charging Jimmy more than Sarah and they're legally prohibited from refusing Jimmy's card unless they also refuse Sarah's.

Lots of gas stations violate this "legal prohibition". I suspect an enterprising lawyer could create inconveniences for the credit card firms, such that they'd have to purchase more horrible laws to keep the racket going.

> Lots of gas stations violate this "legal prohibition"

Uhm technically yes, but functionally no.

When gas was routinely $3.5/gal in SoCAL (where I live), credit price used to be $3.5/gal and cash price $3.4/gal.

My credit card gives me straight 5.2% cash back on purchases at the pump.

I hence pay $3.3/gal - still less than the cash price of $3.4/gal.

That's because the ridiculous fees that credit cards have in the US which funds that for you. In EU the max cap for merchant fees using credit cards are 0.3% and 0.2% for debit cards.

Just a quick search here in Sweden the "best ones" totes zero interest for 45 days, one has about 0.4% cashback if you book flights with them, probably regular flights and not combined with other promotions.... Can't be bothered to dig in. All have much much higher fees regarding atm withdrawals and global purchases compared to debit cards.

Other tries to have "10% off using the promotion store at this online store" whatever that means. Probably stuff you never needed in the first place.

> Other tries to have "10% using the promotion store at this online store" whatever that means. Probably stuff you never needed in the first place.

I respond to those 10% aggressively. I can assure you those 10% off at Walmart is used to purchase durable, essential goods. Those 10% off at Advanced Auto Parts are used to purchase parts for my 98 Toyota Camry that I love to maintain myself and has 270k miles on it. There is no reason why anyone here cannot replicate this when I can.

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