Sunday, February 08, 2009

The Assault on Saving, I of II

Nowhere else in the free world are the rhetorical obscenities necessary to justify radical economic fallacy so flagrantly on display right now as in our nation's capital. Nowhere else but in a political setting can good so easily be viewed as evil, can vice be so suddenly transformed into virtue; can common sense so quickly be chastised as ignorance.

I am talking of course, of the political establishment's all-out war against thrift in the current economic mess. In the stimulus debate going on right now, there is deep disdain for giving out tax refunds because, God forbid, the people might actually just "save" some of it. And that's bad news! We can't have that! We can't allow selfish private citizens to think only of themselves instead of the common good during these rough times! We can't have miserly taxpayers hoarding dollars into their bank accounts! This is proof, the president said last month, that only government can truly look out for the common good and get money circulating again to create jobs! Right?

So, the politicians and so-called "economists" who say and publish whatever is necessary to win their favor reason that the "wise" course would be to "get the biggest bang for the buck" by spending the money on government make-work projects, food stamps, and unemployment benefits. This, they claim, will have a so-called "multiplier effect" because it will force dollars to "circulate" out in the economy in and endless process that will create an infinite number of jobs! Yay! The public workers will most certainly get some cash, and then they'll turn around and spend it at the grocery store, so that the grocery store's employees can get cash and spend it on new DVD players, so that the DVD manufacturers will get paid and spend it on new cars, so that the automakers can go out and purchase new houses! And the boom never ends! Thanks to government spending, we'll just have a never-ending, "trickle-up" spiral of prosperity! Anyone who's watched CNN, CBS, NBC, MSNBC, ABC, or read any major newspaper has been subjected to this drivel on a daily basis.

Nevermind that it's equally imaginable how the public worker, like the refund recipient, could also decide to save a portion of his income. Maybe he won't go out and buy that flat-screen. Maybe he'll just sock it away like all the other stingy taxpayers would have. I guess in the minds of the business journalists and exhalted economists, the public worker is somehow "different." He's just going to be inherently generous with his paycheck for some reason, it's presumed. How or why, I'm not sure. Like the several other "crises" we've experienced these last 6 months, we just have to take them at their word, I guess. And we know how that usually turns out.

But this is all beside the point. The theory that we can somehow spend our way into prosperity not only seems just a little too good to be true, but it contradicts and violates everything common sense has told us for thousands of years. Since time immemorial, the virtues of saving over spending have been preached. Since ancient times, in every successful religion, culture, and tradition, thrift and industry have been exalted while prodigality and waste have been chastised. Since grade school, our parents have always lectured us to keep whatever and whenever we can, and to spend less than what we have. Only in Washington, D.C. are such established truths and proverbs perverted to serve the ends of the political class and their addiction to spending other people's money.

So, as I'll demonstrate in tomorrow's post, politicians and media pundits are putting the cart in front of the horse when they say things like "consumer spending drives the economy," because saving is not the enemy of economic growth but is in fact its very source. Stay tuned as we will see how a simple short story can illustrate this truism and thoroughly dismantle Keynes' alleged "paradox."

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