Nontrivial Pursuits

Nontrivial Pursuits links of interest:
Republican Nemesis
Economic Justice

Senator John Edwards has decided to join Supply-Sider Republican Jack Kemp in an effort to turn America into a nation of savers.  Sounds like a great idea, doesn’t it?  The only problem is that, if such a goal was actually achieved in any big way, the economy would be thrown into a deep recession, possibly even a Depression.  

When public officials start to talk about the nation’s savings habits, they need to keep a few key economic facts in mind:

Number 1:  ALL JOBS IN THE ECONOMY ARE DEPENDENT ON THE SPENDING OF OTHERS (households, firms, governments).  That’s where the money comes from that pays everyone’s salaries.  An increase in GDP (spending) generally reduces unemployment.

Number 2: MONEY SAVED IS MONEY NOT SPENT.  A decision to save is a willful decision to not spend.  

Number 3: EXCESSIVE SAVING CAUSES UNEMPLOYMENT.  It’s what caused the Great Depression of the 1930’s.  People who had money—-that they could have either spent or saved—-were choosing not to spend it.  People who would have been happy to spend that money did not have it in their possession.  Generally, when people start to save more and spend less, jobs disappear.  When that happens, we call the result a Recession.

If John Edwards wants to join in an effort to turn America into a ‘nation of savers’, he’s going to have to explain at some point why he wants something to happen that we know is going to worsen unemployment (if the goal is achieved in a big way) while at the same time saying that he wants to reduce poverty.  The way out of this dilemma is for the Senator to start being more specific in his stated goals.

Having more savings available at your disposal is a wonderful goal.  The only problem is that it is possible for too much saving to occur in an economy.  As long as there is zero unemployment, we don’t have to worry about excessive savings levels in the economy, but whenever there is a shortage of jobs, the very last thing we need is an increase in total savings.  We’d need more spending of saved money, instead.

This constraint should not deter John Edwards in his efforts to encourage and enable more savings for lower class households, but he needs to start making distinctions.  He needs to point out that when there is too much saving going on in the economy, it does not mean that everyone is saving too much money.  The problem is that some people are saving too much money; even while others are not saving enough.  In effect, these Super Savers (generally, the Rich) are ‘hogging all of the available savings’ that the economy can safely tolerate (without creating or worsening an unemployment problem).

Senator Edwards would be able to help his cause (aiding the victims of poverty)——as well as distinguish himself from other political contenders—-by pointing out that the real problem the nation is facing when it comes to the topic of savings is not that there is an inadequate level of total savings in the economy, but that there is an inequitable distribution of the total savings that the economy can safely tolerate.  The upper-bound constraint that we face when it comes to total savings forces the realization that we can safely increase the savings of the poor and working class only by reducing the savings levels of the very rich.  (Yes, it really is a zero-sum solution.)

When there is any level of unemployment in the economy, the federal government is morally obligated to tax the `excess savings’ of those who need extra savings the least—-the Rich—-and spend that money on improvements in the nation’s infrastructure.  Their excessive savings are thereby re-distributed through job creation to the poor, who are then in a better position to save money for themselves.  That’s really the only way we can increase the savings opportunities of the poor without damaging the overall economy.

Of course Senator Edwards is right that we need to do something to help the poor to save money.  But let’s not let the Republicans take that sympathy and translate it into a general call for all Americans to save more.  We need to be very specific about who needs more savings and who needs less.  It is, of course, the poor who need more savings but at the same time rich people need to spend more of their savings on improving the nation’s infrastructure through their government.

Let’s not let ourselves get tangled up in yet another of the clever obfuscation schemes that the Republicans use so well.

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