When A Reduction In Consumption Is A Good Thing

By Henry K. Hebeler at Marketwatch

News media have learned to headline a reduction in consumption as a bad thing since it often comes before possible job losses, a poor stock market or a reduction in local, state and federal tax receipts.

Articles in The Wall Street Journal like “U.S. Consumers Remain Cautious,” point out that consumption is two-thirds of our economy. Hence it’s good to encourage spending. This is very short-range thinking. When people aren’t consuming, they are saving. You can’t simultaneously spend and save the same dollar.

National savings are a disgrace. The median savings for 55 years and older is only $33,000, according to the U.S. Government Accountability Office. After World War II, people saved about 10% of their after-tax income. Savings rates are now only 5%. Most of that 5% is from higher income people. We have to cut spending, hence consumption, by at least 5% as does the government or future generations will be unable to pay interest on the government debt, much less the principal.
During World War II, households saved over 20% both because things like new cars and appliances weren’t available and because saving was patriotic. Now the government wants us to spend, not save, to

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