Rainy Day Savings vs. Radio Ga Ga

Were it not for the up to the minute traffic reports I would not listen to Charlotte’s Morning News with Al Gardner on WBT (1100 AM). The program is a spring of insufferable government cheer-leading. This morning was no exception – a panic-stricken reporter stated that the rate of personal savings among U.S. households has reached its highest level in over a decade. “But,” the newsnik warned, “all that saving has a dark side. Until consumers begin spending again, the economy will continue to tank.”

Pure Keynesian hogwash.

We debate this topic in my office on a regular basis. Our sales analyst contends that the economy is in trouble because the public has, psychologically-speaking, “lost confidence.” People, he says, are irrationally cutting back “way too much” on spending. “People are going without because they are panicked.”

Going without? Is he serious?

Looking around, I observe enough rotundness to convince me that very few are “going without.” What is really happening is private citizens are taking stock of their incomes and expenses, factoring in the uncertainty of businesses correcting their productive capacities, and making the perfectly rational decision to forego luxury consumption. This proves one of the fundamental axioms of logical economic analysis: that human action is directed toward the future. Each person is asking, “How much money will I need to meet future needs?”

In the recent past, for example, the (central bank) credit-stimulated housing bubble deceived the public into thinking that real estate values would ascend unhindered into the starry heavens forever. They made purchases, borrowing against their home equities, based on contorted market signals. But now, a growing number of prudent citizens are finally putting hard-earned money back into sundry rainy day funds.

Present-day saving lays the groundwork for future economic growth. The public saves while businesses reassess and reallocate resources to more productive and profitable means. But the prudent are being forced to swim upstream. As the Federal Reserve, rather insidiously, drives interest rates toward zero in order to “stimulate” more borrowing, investors lose return on their savings.

Our sales analyst, like the voice on the airwaves, believes in the Keynesian (statist) stimulus-response dogma. The public are a bunch of lab rats in need of a good shocking towards more frivolous spending and debt. Put another way, what the junkie needs is another hit of smack.

The very behavior that got us into the present unpleasantness.