As I was getting the mail yesterday, I noticed my brother’s new issue of Newsweek. “I Want YOU to Start Spending!” the cover declared, leading into a cover story which more blatantly declared that we should “Stop Saving Now!” The tagline continued: “As consumers hibernate and investors hoard cash, the economy is withering. This new age of thrift is understandable. But for a recovery to take hold, Americans will need to start taking risks again.” Advocating an easy use of baseless credit and money in economic conditions such as the current ones demonstrates ignorance of basic principles of economics at best. Doesn’t Newsweek know that it is through the accumulation of real capital through saving that the economy can grow?
George Reisman explains the need for saving and capital accumulation here, likening the situation to an exhausted man who needs to eat food, not simply take drugs — in this case, stimulus bills and reckless spending habits — which will make him feel better in the short term but only set him up for another, later crash.Published in