Saving is Sin, Spending a Virtue

Written by an Indian Economist( a New School of thought)

Japanese save a lot. They do not spend much. Also Japan exports far more than it imports. Japan has an annual trade surplus of over $100 billion, yet Japanese economy is considered weak, even collapsing. Americans spend a lot, save little. Also, the US imports more than it exports. The United States has an annual trade deficit of over $400 billion, yet, the American economy is considered strong and trusted to get stronger.

But where from do Americans get money they spend? They borrow from Japan, China and even India . Virtually others save for the U.S. to spend. Global savings are mostly invested in the U.S.-- in dollars. India itself keeps its foreign currency assets of over $50 billion in US securities. China has sunk over $160 billion into US securities. Japan's stakes in US securities is in the trillions.

Result : The United States has taken over $5 trillion from the world. So, as the world saves for the U.S., the Americans spend freely. Today, to keep the US consumption going, that is for the US economy to work, other countries have to remit $180 billion every quarter, which is $2 billion a day, to the US -- otherwise the US economy would go for a six. And so will the global economy. The result will be no different if the U.S. consumers begin consuming less.

A Chinese economist asked a neat question. Who has invested more, the U.S. in China , or China in the U.S.? The United States has invested in China less than half of what China has invested in the United States. The same is the case with India . We have invested over $50 billion in the United States. But the U.S. has invested less than $20 billion in India. Why is world after US?

The secret lies in the American spending [habit], that they hardly save. In fact they use their credit cards to spend their future income. It is that the US spends -- that is what makes it so attractive to export to the U.S. Therefore, the US imports more than what it exports year after year. The result: The world is dependent on the Unted States' consumption for its growth. By its deepening culture of consumption, the U.S. has habituated the world to feed on U.S. consumption. But as the U.S. needs money to finance its consumption, the world provides the money. Its like a shopkeeper providing the money to a customer so that the customer keeps buying from the shop.. If the customer will not buy, the shop would not have business -- unless the shopkeeper funds the buyer. The U.S. is like the lucky customer. And the world is like the helpless
shopkeeper, albeit financier.
Who is America's biggest shopkeeper financier? Japan, of course. Yet it is Japan which is regarded as weak. Modern economists complain that Japanese do not spend, so they do not grow. To force the Japanese to spend, the Japanese government exerted itself, reduced the savings rates, even charged the savers for saving. Even then, the Japanese did not spend (habits do not change, even with taxes, do they?). Their traditional postal savings alone is over $1.2 trillions, about three times the Indian GDP. Thus, savings, far from being the strength of Japan , has become its pain.

Hence, what is the lesson? That is, a nation cannot grow unless the people spend, not save. Not just spend, but borrow and spend. Dr. Jagdish Bhagwati, the famous Indian-born economist in the US , told Manmohan
Singh that Indians save wastefully. Ask them to spend, on imported cars and, seriously, even on cosmetics! This will put India on a growth curve. Saving is a sin, and spending is a virtue. But before you follow this neo economics concept you have to find some fools to save so that you can borrow from them -- and then spend.

This is what US has successfully done in last few decades

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