Save! Spend!
We all need to spend to get the economy going again.
We all need to save to give America a sound capital base.
Spend more and save more. How, you may ask, do I do both?
There is only one answer. Make more.
Let me expand on each of the above. The first is easy. As I said in my October 24 post, businesses and individuals are all responding to the economic crash by cutting spending. That makes the slowdown worse, so governments around the world are using the Keynesian formula for shortening the depth and breadth of the downturn: deficit government spending. But that effort cannot last and ultimately we all have to start spending again. The theory, to which I subscribe, is that targeted government spending can pump enough money into our pockets to kick-start economic activity. So, okay, when you have more cash (and confidence), you'll likely spend more.
But there is also a structural problem here in the USA. We have pretty much stopped saving. Not only has the federal government been piling up trillions of dollars of debt, companies and consumers have been doing likewise. This debt has been financed by Japan, China and OPEC. This too is unsustainable. If our savings rate rose to just 5%, which is low by historical (though not recent) and worldwide standards, we'd be able to fund much of our own annual national debt and stop borrowing trillions abroad. That means we lend the money to each other and interest is earned here at home, thus it is spent and saved at home.
History shows us how to make more so we can both spend more and save more. It is not through inflation. That route only makes it seem like we are making more, but we then find our spending buys less, so, oops, there goes the ability to save. Instead, we need to increase productivity. When we are more productive, we make more in terms of real spending power and thus can generate personal surpluses, otherwise known as savings.
Now, sure, we need to change our bad habits. We need to restore the virtues of thrift and sound personal financial management. But we don't need to get all tied up in a new culture of austerity. We do need to get focused on a new culture of productivity.
Productivity is about better education for all. It is about healthier workers (i.e. good health insurance for all of us). It is about availability of capital to businesses and consumers, with a proper balance of cost and risk. It is about government policies that encourage the development of new technologies, the true driver of high-paying jobs in the 21st century. It is about tax policies that reward both labor and capital investment. It is about balanced regulation evenly enforced.
Let's get back to growth by focusing on productivity. For the long haul.
We all need to save to give America a sound capital base.
Spend more and save more. How, you may ask, do I do both?
There is only one answer. Make more.
Let me expand on each of the above. The first is easy. As I said in my October 24 post, businesses and individuals are all responding to the economic crash by cutting spending. That makes the slowdown worse, so governments around the world are using the Keynesian formula for shortening the depth and breadth of the downturn: deficit government spending. But that effort cannot last and ultimately we all have to start spending again. The theory, to which I subscribe, is that targeted government spending can pump enough money into our pockets to kick-start economic activity. So, okay, when you have more cash (and confidence), you'll likely spend more.
But there is also a structural problem here in the USA. We have pretty much stopped saving. Not only has the federal government been piling up trillions of dollars of debt, companies and consumers have been doing likewise. This debt has been financed by Japan, China and OPEC. This too is unsustainable. If our savings rate rose to just 5%, which is low by historical (though not recent) and worldwide standards, we'd be able to fund much of our own annual national debt and stop borrowing trillions abroad. That means we lend the money to each other and interest is earned here at home, thus it is spent and saved at home.
History shows us how to make more so we can both spend more and save more. It is not through inflation. That route only makes it seem like we are making more, but we then find our spending buys less, so, oops, there goes the ability to save. Instead, we need to increase productivity. When we are more productive, we make more in terms of real spending power and thus can generate personal surpluses, otherwise known as savings.
Now, sure, we need to change our bad habits. We need to restore the virtues of thrift and sound personal financial management. But we don't need to get all tied up in a new culture of austerity. We do need to get focused on a new culture of productivity.
Productivity is about better education for all. It is about healthier workers (i.e. good health insurance for all of us). It is about availability of capital to businesses and consumers, with a proper balance of cost and risk. It is about government policies that encourage the development of new technologies, the true driver of high-paying jobs in the 21st century. It is about tax policies that reward both labor and capital investment. It is about balanced regulation evenly enforced.
Let's get back to growth by focusing on productivity. For the long haul.
posted by Phil Bookman at 4:07 PM
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