Friday, June 26, 2009

Increased Savings Rate -- That's Bad?

The US savings rate reported today accelerated to 6.9 percent from slightly above zero in the recent past. Somehow this good news is being reported as bad news. As if what we really need is for consumers, drowning in a mountain of debt, to spend with abandon and run up more debt.

Is it true that countries with lower savings rates grow faster? No. Is it true that countries with higher savings rates grow slower? No. So, why is everyone cheering for lower savings rate and frowning when consumers finally begin to say no.

There is no reason why the US economy cannot adjust to a lower consumption rate out of income and achieve even higher growth rates than in the past. That won't happen, of course, because of "cap and trade," card check, government health care schemes, and significantly higher taxes courtesy of the Obama Administration and the Congress. But, if the economy were free to do what it would like to do, growth would be enhanced by a higher savings rate and the new, higher savings rate would be a subject of rejoicing instead of hand-wringing.

Somehow the new mantra is that waste and government are good things and free markets and prudence are bad things. That suggests our economic future will mirror that of other government dominated economies -- stagnation, no growth, and inflation -- nice package. It doesn't have to be that away, but, alas, it probably will be.