Can Savers Save the U.S. Economy?
December 31, 2009
John Tamny wrote a terrific column the other day at Forbes.com noting the vital role that holders of CDs, money market accounts, and savings accounts will play as the U.S. economy recovers from its presently poor state.
Contrary to popular wisdom that sees consumer spending as the best thing for the economy, therefore every time consumer spending goes down that's bad for the economy, Tamny points out that people who save money are actually spurring the economy by saving money.
The logic of Tamny's argument is simple but compelling:
When you save money in CDs, money market accounts, and savings accounts, you are making the capital in those accounts available for borrowing--businesses and homeowners, for example, can borrow more when banks have more money on deposit to lend. That creates growth.
Moreover, the economy benefits in the long run from people having money saved and not simply drowning in debt and living from paycheck to paycheck. The money in those savings accounts can also be used to buy future products.
It is unfortunate that Mr. Tamny's point of view is not more widely circulated in our national media. Because consumer spending accounts for 70% of American GDP, people who don't spend everything they make are sometimes made to feel that they are somehow hurting the economy by saving rather than spending.
It's not true. Savers do more than their fair share to stimulate the American economy.
