Guest Post: Is Saving Money Bad For The Economy?

Tyler Durden's picture

Submitted by Gregory Bresinger via the Ludwig von Mises Institute,

Our grandparents believed in the value of thrift, but many of their grandchildren don’t.

That’s because cultural and economic values have changed dramatically over the last generations as political and media elites have convinced many Americans that saving is passé. So today, under the influence of Keynesian economists who champion government spending and high levels of consumption, thrift has been devalued.

“The growth in wealth, so far from being dependent on the abstinence [savings] of the rich, as is commonly supposed, is more likely to be impeded by it,” according to John Maynard Keynes’s The General Theory of Employment, Interest and Money.

“The more virtuous we are, the more determinedly thrifty, the more obstinately orthodox in our national and personal finance, the more incomes will have to fall,” he writes. “Saving,” Keynes wrote in his Treatise on Money, “is the act of the individual consumer and consists in the negative act of refraining from spending the whole of his current income on consumption.”

But saving, pace Keynes, isn’t “negative.” It is deferred consumption. “The great producing countries are the great consuming countries,” writes Benjamin Anderson in Economics and the Public Welfare. More importantly, high rates of savings will lead to higher productivity, which would benefit our children and grandchildren, classical and Austrian economists have explained.

“We are the lucky heirs of our fathers and forefathers whose saving has accumulated the capital goods with the aid of which we are working today,” wrote Ludwig von Mises in Human Action. Saving, ultimately, is consumption, writes Detley S. Schlichter in Paper Money Collapse. “By setting aside some resources for meeting financial consumption needs, we invest them.”

Nevertheless, Keynesian ideas dominate the Obama administration and mass media. Most politicians, including Republicans who often pretend to be friends of thrift and self-improvement, are tacit or overt Keynesians. That’s because politicians, whether they have studied Keynes or not, generally love the idea of cheap money. Most delight in spending taxpayer dollars. They believe this is the way elections are won.

This Keynesian dominance has led to dramatic economic and cultural changes. These changes have been going on in America for over a half century. For instance, the United States has gone from a nation with one of the highest rates of savings during the 20s to having one of the lowest rates among major industrial nations today.

Yet penalizing thrift, the lifeblood of job creation and better tools that make current workers more efficient, has hurt the nation’s ability to grow and employ millions of young people looking for jobs. That’s because Keynesianism, according to its modern interpreters, amounts to a celebration of consumption. It is a belief that government spending combined with low savings rates lead to permanent booms.

It is the government’s role, Keynes’s followers believe, to keep the boom going through spending. So it is consumption, not supply, that makes a successful economy, they say.

Mainstream media rehashes the message that the consumer, not the producer, is the biggest part of the economy. Politicians agree.

As the economy started to slow down in 2006, President Bush urged Americans to “go shopping more.” Newsweek, in a headline story several years ago, told Americans to “Stop Saving Now.”

This anti-saving philosophy is more than just bad macro-economics. It is the doctrine that has come to take over economic thinking, now dominated in the popular media by Keynesian economists such as Paul Krugman. In his latest book, End This Depression Now, he explains why growth rates are low. The administration hasn’t been sufficiently Keynesian enough. Obama’s stimulus, he complains, was on a “wholly inadequate scale.”

Keynesians of all stripes have constantly urged Americans, especially the government, to spend. The effect of this change has been more than numbers. It also changed how many Americans see the path to self-improvement. Joe Sixpack, the average American who once believed that through thrift, hard work and discipline he could save his way to a better life for his family, is the victim. Keynesian economists and mainstream media commentators often depict savers as selfish people.

Even the average person with his savings account, living in a Brooklyn tenement (I’m speaking of bus driver Ralph Kramden from the iconic television series The Honeymooners) must pay taxes on his measly $75 savings account. This anti-savings mentality has amazed some from nations where savings are viewed positively.

A former U.S. Commerce Secretary was asked by his Japanese counterpart in the 1970s in Pete Peterson’s book Facing Up, “please explain putting the highest taxes on what you call unearned income. We have always assumed that income from savings was the most earned of all. It is hard work to save, don’t you think?”

Tens of millions of baby boomers aren’t doing the hard work. They have little or no savings. How will Keynes and his scions’ misguided policies provide a decent standard of living for them?

America’s personal savings rate declined some 56 percent over the past 50 years from 1963-2012, according to the 2013 Economic Report of the President. The personal savings rate averaged just 3.8 percent in the decade between 2003 and 2012. That’s a big drop compared to the 1963-1972 period when it was 8.7 percent.

However, it’s worse than that. Since the end of last year, the personal savings rate has declined some more, dipping to 2.5 percent in March and April, according to the U.S. Commerce Department’s Bureau of Economic Analysis.

Even President Obama’s economic report, in documenting that savings rates are low, concedes that the recovery that began some four years ago is weak. The recovery, according to the president’s report, trails previous ones.

“From 1960 to 2007, the U.S. economy had seven recessions, and the annual rate of growth of real GDP during the 12 quarters following these recessions was 4.2 percent,” the presidential report said. “In contrast, during the 12 quarters following the trough in the second quarter of 2009, the average annual rate of growth of real GDP was 2.2 percent. After three years of recovery, the cumulative growth of real GDP was 6.3 percentage points lower than the average value for the earlier post-1960 recessions.”

Meanwhile, savers are penalized for their thrift. The Fed’s policies mean they receive almost nothing in interest.

Remarkably, President Obama, in the same report, in a move Keynes would have likely applauded, proposes to put a cap on qualified retirement plan balances. Apparently, the president agrees saving is “a negative act.”

These anti-saving policies should change, some say. A better tax code, one that promotes and doesn’t tax savings to death, will “mean more innovation, job creation and higher wages,” U.S. House of Representatives Ways and Means Committee Chairman Dave Camp noted when I interviewed him for an article in the New York Post.

“When workers see paychecks start to rise again,” Camp adds, “they will be better able to make decisions that best serve the financial needs of their family — including building up their savings.”

But that doesn’t necessarily mean Camp and others will now reject Keynes. Plenty of Republicans— consciously or unconsciously — have shown themselves to be philosophical followers of Keynes. And Camp, working on an overhaul of the tax code, might consider a logical measure: Why not drop all taxes on a savings and investment as a way to reverse decades of destructive economic policy?

That could be the most important decision for a generation of young people without work because doesn’t generate enough capital. It could also be critical for their parents who approach a retirement with a falling standard of living.

Despite the Keynesian sentiments of much of our political and media elites, we owe it to our grandparents to re-learn the lessons of thrift.

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OwnSilverPlayMusic's picture

Ending is better than mending.  The more stiches the less riches! Just enjoy your soma.

sunaJ's picture
Is Saving Money Bad For The Economy?


That is a silly question.  Perhaps it hurts a malignant, cancerous tumor economy, but saving has been - and always will be - a component of humanity.  It is a part of nature to store for a rainy day and it is expressed throughout our world.  I frankly don't give a shit if it is bad for this economy or not.  You may as well ask if it is a good idea to buy another porsche if you already have three...


knukles's picture

Whatever Krugman's for I'm against it!

nmewn's picture

Money is meant for taxing and spending...get with the program!

You want babies to starve without ever knowing the glory of WIC & old people to die without ever knowing they served their "greater purpose" under ObamaScare of supplying soylent green protein for the worker drones!

kaiserhoff's picture

Always eat dessert first,

  because the Earth might be destroyed by a meteor.

Deo vindice's picture

I am not sure about the national / international economies, but I do know saving is great for the economy of my household.

If every household lived within its means, AND insisted their various levels of government did the same, we wouldn't be facing a fraction of the problems we now are.

Anusocracy's picture

The default setting for almost everyone is the instant gratification mindset of the hunter-gatherers.

That makes it so easy to convince them to be spenders, not savers.

TruthInSunshine's picture

Paul "When Mars Attacks" Krugman professes that the most immoral thing any human being can do is to NOT spend all of their income & then go into deep and endless debt to acquire/collect mainly useless stuff, trinkets, widgets & objects.

RKDS's picture

I don't think you actually read what Krugman writes.  It's pretty clear that he's talking about when super rich people take _all_ of the money out of the economy.  There's absolutely no harm in the average person saving a portion of their income (assuming that banks are lending versus gambling).  When some millionaire suit moves the factory to China and the profits to the Caymans, that's a different story.  In the big picture, it's not saving at all, but withdrawals from the US market which cannot be sustained indefinitely without deposits back into the US market.

wisehiney's picture

In that case, I want my dessert to eat me first.

Ghordius's picture

knukles said: "Whatever Krugman's for I'm against it!" - mhhh... Dr. Krugman is very "skeptical" about the EUR

NoDebt's picture

The great Keynesian lie is that what is good for an individual is bad for the economy.  It is not, nor has it ever been.  There is a time-delay in consumption introduced in periods of excessive savings as in periods of excessive borrowing, nothing more.

The great deciding factor is whether that savings or borrowing was put to productive use  If it was not, it's wasted.  If it is, it will pay dividends later.

Guess where we are right now.


Harbanger's picture

We're near the end of the keynesian debt based model.  At the point where saving money works against you if you're not invested.

NoDebt's picture

And by extension, if you can't save/invest in such a period of time, why not borrow to the hilt?  If savings is a drag, what then of debt?

I can't personally wrap my brain around such an idea because I'm genetically wired against being in debt (depression-era grandparents had a big influence on my financial upbringing) and I have personally been debt-free for quite a few years now.  Prior to being debt-free I can't recall very much.  My brain is very good at blocking out painful experiences.

Balkan's picture

The big difference:

You save -> you spend your own money -> you're independent

You borrow -> you repay your own money -> you're dependent

James-Morrison's picture

There is no need to save money.  

The FED produces as much excess savings as required.

Muppet Pimp's picture

If one does not save, i.e. if one never 'owns' any assets they are a mere debt slave, dependant upon the ever increasing debt of the state et. al. to sustain them.  When the ponzi event horizon comes, they are what is commonly referred to as homeless or 'bums'.  The nice house, the expensive cars, the spot in the best private school in town, they all end up the property of the saver when the edifice collapses.


Bryan's picture

property of the saver?  You think our benevolent government will let its citizens actually keep their assets if the SHTF?

NidStyles's picture

It's not the government you should be worried about. It's those that only exist because of the government largesse allowed them to exist that are the real threat.

Mototard at Large's picture

Banks, Terrorism and other Existential Threats: The Real Invisible Hand

A request for assistance from ZH readers (known for being enthusiastic commenters) :

We have prepared a series of three papers and a podcast on the dangers of the use of fiat/digital currency combined with the near total dependency of most of our economies on the international payments and settlements system.  This leaves us vulnerable to a systemic collapse, an insider threat and/or a foreign attack (read China, Iran, Hezbollah).  In short, banks and anyone who deals with a bank is on the frontline of a new form of warfare.

These research papers and the podcast mark the first time that anyone has been drawn attention to the line between fiat vulnerability and the payments and settlement system. We will be writing a fourth paper on potential solutions and options for moving ahead. Any comments or ideas are welcome here or at


** *The Broken Mirrors website is not set up to be a for-profit website or business (yet).   However, we do intend to make the transition to making money sometime in early 2014 as we develop the work on the site and an associated online training program. In other words, no direct financial gain from this posting.


Banks, Terrorism and other Existential Threats: The Real Invisible Hand

We can begin the discussion with a simple proposition: what bankers are allowing to happen (consciously or not) at Central Banks and Financial Institutions is far more fearsome than what terrorists have planned in the past. A failure of their jointly operated payments and settlements system would do more systemic damage to the advanced economies than any terrorist attack has done to date. The payments and settlements system is virtually invisible to the public, intelligence and security agencies and most politicians. Yet this ‘invisible’ system has implicated itself into the everyday lives of the populations of almost all of the developed economies.

The other invisible factor lurking in the background is the fiat currency system used by almost all developed nations. Those bank notes in your pocket or wallet are called ‘fiat currency’ as there is little to nothing that supports them other than pure faith – which is by definition invisible.  When individuals lose faith in their government or their financial system, the currency can become nearly worthless in a rapid manner: history is littered with failed fiat currencies.

The intelligence community as a whole has not seriously examined the potential for the application of the use of force (cyber or otherwise) within this economic domain. Nor is it clear that most Western governments have any ability to respond to such an attack (or internal failure) should such an event occur. As Jason Healey, the former White House Director of Cyber Infrastructure Protection noted in a recent address, if the United States is engaged in a cyberwar, Americans would be far better served by contacting Microsoft or AT&T rather than the Department of Homeland Security.

For more on this see:

Banks, Terrorism and other Existential Threats: The Real Invisible Hand  (intro, list of papers and links)

The Invisible War in Your Wallet – The Sixth Domain of Warfare is You  (the invisible links between banks, terrorism and existential threats, the international payments and settlements system, the existential threat resident in the current limitations of the (il)legitimacy of the fiat currency system, impact of a failure on the economy and you)

Welcome To The Front – Social and Economic Warfare is all about You (future scenario involving the People’s Republic of China, China’s capabilities and intentions, how a potential conflict scenario could develop, previous payments and settlements attacks and failures, conclusions about the state of system security)

The Transformation of the Sixth Domain: Economic Warfare and You in the Information Age.  or at     Podcast (economic warfare, scenarios, fiat currency history, fiat currency current situation, pushing back against the system, community resilience)

FUTURE PAPER: We intend to write one more paper on the payments and settlements system which would identify the path ahead.  Reader comments and ideas will be included and we want your views!  This paper will address issues around the functioning of ATMs in the event of a payments and settlements crisis and whether or not individual FIs would be able/willing to provide cash to only their own customers.  Would this cause a run on the banks?  If there is a breakdown in the payments and settlements system, what would happen to note exchange and provision systems and how would cash get to the FIs?  What would be the effect on securities exchanges, cheques clearing, retail debits, direct deposits, derivatives and foreign currency exchanges? How would they be settled without the payments and settlement system?

Please leave comments here or send directly, in confidence, to

socalbeach's picture

I'm extremely concerned about an attack by Hezbollah. I hear they're very good at making tunnels, and they could be tunneling through the center of the earth right now to attack the U.S.

lasvegaspersona's picture


If we did not save in the medium of exchange then there would be lots of currency to spend and yet savers would not get screwed (as they always do). hmmm save gold, spend (and do not hoard) paper....

NidStyles's picture

Only applies ina system where the legal tender is declared by government rather than by the markets themselves.

0b1knob's picture



How dare people not spend the money that the government has gone to such trouble to print?

grid-b-gone's picture

Nice add-on to George's list.

Brett Merkey's picture



"Saving is Theft" pretty much sums every measure they take to strip us of the dignity of citizenship and mold us into consumers. Even when a person defies convention and convenience to live a simple life and save--the government and the banks penalize and continue the theft in the most real sense.

The von Mises Institute stuff has insights I like to learn from but still, they seem professorish and utopian, with no practical paths proposed to get from here to there.



James's picture

"with no practical paths proposed to get from here to there".

That could be explained by the Mises Institute recieving funding from the Rockefeller Trust.

Are you sure they want you to get from here to there?

MissCellany's picture

I might spend some of it, if I were seeing any of it.

Of course, I'd put the rest into phyzz and take an unfortunate boat trip.

Seasmoke's picture

Why save when you can always take at the threat of force. 

XitSam's picture

That's the government's theory anyway.

Manthong's picture

They pay no interest..

Depositors are unsecured creditors to banks.. behind other banks and funds in the derivatives markets..

The whole system is hanging by a synthetic thread..

The market is a risk environment.. equities are synthetics.

Saving is only worthwhile in hard assets and mattresses. 

wisehiney's picture

Frugality may be termed the daughter of Prudence, the sister of Temperance, and the parent of Liberty.

  ~Samuel Johnson - (also, Patriotism is the last refuge of a scoundrel.)

monad's picture

The Greeks & Romans built to last for ages. The current flock is conditioned to 'throw away' values, in order to justify continuous marketing, production, regulation, taxation and consumption. It makes it easier to adapt after the surplus population is disposed of. 

grid-b-gone's picture

From Econ 101 over 20 years ago,

Savings is a personal virtue, but an economic woe. Similarly, the concentration of wealth is a societal negative but a personal benefit. 

When people I know buy something, usually expensive, that weakens their financial plan, they often comment about helping the economy. 

Even the spendthrifts understand they are adding to the velocity of money and vibrance of the economy when they do more consuming than saving.

Diogenes's picture

Where do they think savings go when you put your money in the bank? Do they suppose the money  disappears? Don't they know the banks lend it out right away?

Saving does no harm in the short run and does much good in the long run.

Manthong's picture

Did I miss an implied sarc?

Unless I am mistaking, that was to some degree true prior to Clinton’s 2000 CFMA.

Nowadays, your savings (and Fed borrowing) goes immediately to some synthetic betting instrument.

Little makes it back out to the economy.

Diogenes's picture

Try putting your savings in your local credit union. The money will be loaned to someone in your community in a few days.

Shell Game's picture

In a collectivist Hive, the question is relevant. 

eddiebe's picture

Saving money is bad for the individual but great for the state. Because of real inflation the money slowly (or not so ) vanishes into thin air. To the economy we have in the US it is irrevelant, because it is created by appearent magic.

SubjectivObject's picture

Long as you can make the minimum payments, we'll let you play along. 

But get unemployed or retire, and, for all we care, you can just FOAD.

Anonymouse's picture

If Keynesians consider savings to be bad, is that because it is only for the elites, but bad for us plebes who don't know the proper way to invest?  Probably.

Other possibilities:

- All savings are bad, but that makes no sense.  If everyone spends all they have, then how would the goods that are to be produced be financed?

- No savings are bad, but that's the opposite of what they say

- There is a Laffer Curve of savings optimization.  Saving nothing is bad, saving everything is bad.  Somewhere in the middle is an optimal amount of savings.  If so, what is that amount, and how do our political masters determine that rate of savings?  How does it fit in with ZIRP?

The only other possibility is that Keynesianism is utter nonsense.

NidStyles's picture

That last line is your answer.

Anonymouse's picture

Agree the last sentence is the true answer, but I think the first paragraph likely is the Keynesian mindset.

mrpxsytin's picture

I liken Keynesianism to running an engine in the red zone. Sometimes you need that short burst of power to manouvre away from danger, or make a quick change in direction. However, as we know, running the engine at high revs for an extended period of time is terminal. But then again, it seems that millions of people love to watch engines exploding (e.g., drag races, and other motor sports). So maybe we just need to sit back and enjoy the show... 

akak's picture

Let's be specific here --- our saving is bad for them, as it is just another manifestation of self-sufficiency (financial self-sufficiency in this case) that must be stamped-out in order to make all of us serfs more dependent upon, and subservient to, those in economic and political control.

Debt Slave's picture

Keynesian economists and mainstream media commentators often depict savers as selfish people.

That's right folks. I'm selfish because I saved for 30 years, thus assuring that I won't be a burden on any of you in my old age. What an inconsiderate, selfish thing to do. My reliance upon myself is a shameful behavior that hurts the economy. Yeah.

Keynesian economics has it's roots in marxism.

Torgo's picture

Well said. The most charitable thing a person can do is to never be reliant on charity. If that be selfish, then so be it, because self-directed and self-benefitting action is the essence of life. But Obama and his leftist minions hate the essence of life itself.

Diogenes's picture

You would think savings disappear from the economy when we put them in the bank. Not so. The bank lends the money out so it goes back into the economy right away.

What is more if the money is invested in some productive business it does more for the economy than if it is spent on consumption.

In other words saving takes nothing from the economy in the short run and is of great benefit in the long run.

I'm surprised no economist has figured this out in 100 years.