Kudlow: Saving vs. consumption is a phony choice

November 18, 2009

The Great One has little use for the zero-sum politics (and economics) of false choices:

Before getting into the currency question, let me say this: I think more saving (and investment) by U.S. citizens is a great idea. But this need not come at the expense of consumption. In a prosperous free economy, people should be able to save, invest, work, and spend as much as they like. More is better than less in each case. Grow the pie larger.

Of course, if the president and his team want more saving and investment, they should end the multiple taxation of saving and investment. Unfortunately, our system taxes saving as income, capital gains, dividends, and inheritance.

Team Obama also intends to tax wealth more by raising the top personal tax rate from 35 to 40 percent. And they apparently don’t object to Nancy Pelosi’s plan to slap another 5.4 percent tax on the incomes and capital-gains of successful earners in order to finance a government takeover of health care.

Wealth is a crucial form of saving. And the investment that comes from extra saving is used to finance the entrepreneurial start-ups that create the jobs and incomes that allow families to spend. However, by creating a zero-sum game between saving and spending, the Obama planners are falling into an austerity trap — one that would hand the American economy a second-place finish in the global race for capital and growth.

2 comments

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>In a prosperous free economy, people should be able to save, invest, work, and spend as much as they like. More is better than less in each case.

I’m afraid the “Great One” had better go back and take Econ 101. The more you save, the less there is left over for consumption, and vice versa. It’s not that hard to understand.

Posted by Kramer | Report as abusive

James might be correct if the “free market” were limited to areas that are not central to human development and well being.

If the free market were put in its place then perhaps there would be more money for consumption. But when citizens have to choose between basic needs and shiny wants, the needs will win every time.

If education, health care, and housing were socialized just like our military, police, and fire protection, then perhaps there would be some money left for consumption. But you can’t expect consumers to carry the economy if the economy is not taking care of its consumers. You can’t get life from what is lifeless. The American consumer is tapped out. Give something back and we will see growth.

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