Friday, January 30, 2009

Importance of Savings

Letter sent to the Raleigh News & Observer
In a recent editorial, Paul Krugman continues his cheerleading for the economic stimulus package by disparaging the idea of tax cuts. He says that the money will simply be saved, but savings has an important social function – it provides capital that helps create a progressing economy and gives people resources to weather economic storms. It makes me wonder if Krugman really understands the nature of savings.

He also claims that "when it comes to economic stimulus, public spending provides much more bang for the buck than tax cuts." Even if this magic government multiplier idea is correct, is it really wise to attempt to maintain consumption at levels that many agreed were unsustainable during the boom? If Democrats are so eager to use this crisis to remake society, why not let society adjust to a new consumption/savings pattern that allows for sustainable growth?

Krugman wants to claim that arguments against the stimulus package are fraudulent. Some of them may be, but some of his claims in support of the package are baffling, especially coming from an economist.

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