Ron Wilcox

Ron Wilcox

3/24/2009 @ 6:00PM

The Thrifty Gene

When the nights turn colder and the sun traces a more southerly route in the daytime sky, squirrels know it’s time to go collect and hoard nuts. If they don’t, they will not survive the oncoming winter. Our ancestors also knew they would be more likely to survive if they collected and stored things that were scarce during those cold months. The huts and tents had better be complete, the meat salted and stored, and the warm animal skins at the ready.

Of course, we don’t need to store these things now; modern production, transportation and markets allow us to buy a coat in the middle of winter and to purchase asparagus in January. But that instinct is still there, as strong as ever. It instructs us to watch out for scarcity and shortage, to gather resources and to hunker down and be cautious.

And right now that instinct is what’s keeping consumers from spending or using credit–no matter how much government and business do to convince them otherwise. So long as there is fear and uncertainty, we will save. Access to consumer credit is not going to change our hard-wired minds.

For most of human history, we have spent significant time trying to figure out how to keep ourselves and our children alive. The fact that the current source of our fear and uncertainty is more tightly connected to the implosion of AIG or to downsizing at our company rather than bitter cold or an impending animal attack makes no difference. Our ancient selves are screaming at us, “Get resources, store them and protect them!”

As a result, savings rates have increased significantly over the last several months, and discretionary spending has decreased sharply. Because of the way these statistics are computed, the diversion of resources from spending to savings is probably even more dramatic than government figures suggest. Some of this shift is due to the tightening of consumer credit, but not most of it. Our natural reaction to scarcity and uncertainty is the far more powerful explanation here.

A return to thrift is not a bad thing. Although excess savings can dampen economic growth in the short run, the average highly leveraged American household could probably use a cooling-off period. Household balance sheets need to be adjusted, increasing private savings and decreasing private debt, or any economic recovery will be quickly undermined.

Further, I expect the natural tendency to save more will echo through the coming decades. People who experienced the Great Depression have saved more money throughout their lives. The current downturn is beginning to take on psychological characteristics that are more closely aligned with those seen during that era, and the knowledge and memories that flow from this experience are likely to endure, offering a warning that “yes, things really can get very bad and stay that way for a long time.”

This is the psychological landscape we face. Economic policy that ignores these realities, that retreats to its comfortable world of prognostication using hyper-rational people operating in a psychology-free economic world, will produce folly. We probably can enact policies that will turn the cheap credit machine back on, but real people with hopes, fears and brains designed for survival will not listen.

Ron Wilcox is a Darden School professor of business administration at the University of Virginia and author of Whatever Happened to Thrift? Why Americans Don’t Save and What to Do About It. He blogs at

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