12/13/2005

why are we saving?

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 wastefully save. Ask them to spend, on imported cars and, seriously, even on cosmetics! This will put India on a growth curve. "Saving is sin, and spending is virtue." Before you follow this neo economics, get some fools to save so that you can borrow from them and spend. someone sent the above to me. in the article usa is seen as economically strong but with annual trade deficits in hundreds of billions. japan is seen as economically weak but with savings and trade surplus in trillions. is this the same problem we are doing to our economy? save, save and save. cpf, national reserves, charities, individual savings, corporate savings and stats board savings.

2 comments:

Matilah_Singapura said...

An.. shades of John Maynard Keynes - who called money savers "hoarders", and therefore designed a "general theory" (macro economics) to punish the hoarders.

Governments followed this advice - and one can see that from the early 20th century there was constant violence - global warfare, cold war, political turmoil etc. Yes, Keynes theories had a lot to do with the arms race and the brutality and bloodshed of the last century.

Many govts still adopt Keynes (and Samuleson - who wrote the famous econs textbook) and all his fallacious constructs, but thankfully there are still some intelligent "individualists" in the world who've created and kept the wealth by simple being rational - i.e. hard work, thrift and wise investment based on foregoing short-term benefits for long-term gain.

The "borrow and spend" mentality is typically out of Keynes.

China is the one to watch, as well as India. Those who can save, and live within their means without too much discomfort win in the long term.

Both countries are retaining their earnings as huge pools of savings, which are growing rapidly.

Check out this great article by S'pore businessman K.Y. Leong:

http://www.mises.org/story/1969

redbean said...

hi matilah,

it was a long time since i read econ101. keynes and the chicago school. savings have its own advantages. being prudent is good up to a point. in fact everything is good or right up to a point.

the kind of savings we are doing, is a bit extreme. and every time we save, the principle is to sacrifice immediate satisfaction for tomorrow.

when a state saves, or when nkf saves, they sacrifice the good of the present people. the present is dispendable. and tomorrow will benefit.

but again up to a point. if the savings is uncontrolled, savings for the sake of savings without knowing how much to save, the reserves can be build to a mountain, and many generations can be sacrificed. which is unfair or wrong to the current generation. the present becomes the sacrificial lamb.