Hi bambs, I understand how you would make the mistake of thinking savings are a good thing. However, economics 101 will tell you that spending, not saving, is a good thing. The virtuous cycle is begun with lots of consumer, business, and government spending. The virtuous cycle is continued with low taxes, frictionless markets, low unemployment, and productivity growth. Right now, if consumers were to reign in spending and start saving like mad, then that would have a ripple affect that would have dire consequences for our economy.
For all of you that are interested, Aggregate Demand is defined as consumer spending + business spending + government spending - taxes. That's a simplified version that doesn't take into account such things as the multiplier effect of spending, etc, but it's good enough for the layman. Any of those spending figures go down and the economy suffers by that amount adjusted by a multiplier affect. If taxes go up, the economy suffers in two ways: lower aggregate demand and lower consumer spending (hopefully offset by government spending).
Anyway, you can play with the formula, but it's more useful in understanding that spending is what makes the US economy strong. Saving is what has made Japan's economy weak. They weren't able to spend their way out of a depression, not to mention all their other structural problems. |
