What if the impossibly low savings rate is the real cause of the recession?
The US household savings rate hasn't hurdled the 3% rate in ten years. And in the meantime, household debt has been bounding upward non-stop until just a few months ago. If one assumes that the US was over-consuming and under-saving for the last ten years straight, then it should come as no surprise that consumption will have to hit the brakes for a while as some of the debts are paid down. We have, in effect, hit our national credit limit, or so it would appear. That means we'll need to spend a little while at a slowed rate of growth. But on the positive side, if the savings rate really is increasing, that means more money flowing to investment -- which is what sets the foundation for sustainable economic growth in the future. In personal terms, it's as though your parents, after having spent too much in their 20s, have to cut back a bit on consumption and pay down some debts in their 30s. And while paying down those debts, they also choose to set aside a little money for your college fund. Neither you, nor they, enjoys that thrift much in the moment, but you'll certainly appreciate it in twenty years when that thrift helps ratchet up your earnings potential -- from which they, in turn, will benefit as you purchase them nicer birthday gifts and eventually help them afford a better retirement community. Saving may not be much fun in the moment -- and it may not be what the President wants more of as he focuses on consumer spending as a route to higher employment figures -- but it's exactly what a nation of adults has to do to ensure that they maintain a healthy standard of living in the decades to come. Investment is just as much a component of gross domestic product (that is, national income) as consumption (at least, according to the Keynesian models of which the President appears to be a fan). That being the case, we should be just as pleased if people are saving more as if they are spending more, since the "saved" money doesn't just sit around gathering dust anyway -- it turns into new factories and offices, new equipment, and new training budgets, all of which set the stage for sustainable new growth.
Stimulus spending in medicine?
If the Federal government is in a rush to borrow trillions of dollars to pump them into the economy, then it's quite reasonable to ask whether a big chunk of that money could be spent on medical research which could save lives. (It is, of course, also quite reasonable to ask whether it's right to borrow any of that money at all, given the government's preposterously huge outstanding debt and the weak evidence that "stimulus" spending is necessarily a good idea at all.) But if the act of new borrowing itself is a foregone conclusion, then at the very least, we should ask for some of that spending to be placed where it might have tangible benefits to society.
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Podcast: Investment counts as much as consumer spending
(Audio file) We're being buried in an avalanche of government promises, including up to $1 trillion to absorb mortgage debt, on top of another $800 billion in "stimulus" spending.