The two great myths of bad economics are
a) saving is good, consumption is bad
b) consumption is good, saving is bad.
Let us consider them one at a time. Looking simply at the gross amount saved as a sign of a society doing well may satisfy narrow minds but is bad economics. There are those who seek to minimize consumption and maximize saving with the smug assurance of moral certitude. They are wrong.
The gross amount of saving is irrelevant and inasmuch as it causes suffering in the form of lower consumption, is dangerous folly. James K. Galbraith has pointed out in his brilliant book The Predator State that right before the dissolution of the great Soviet empire, its saving rates were among the highest in the world. This high saving did result in low consumption, with hungry, ill-clothed and sheltered people particularly in the provinces, but did not make the Soviet economy function well enough to survive another day. What matters is never the gross quantity of saving but the nature of saving, its quality.
The right kind of saving, generated in the living and working of whole lives, is what is good. And so is the right kind of consumption, generated from work that does not divide the self, that is made out of love and results in love.
Let us consider the second myth. This relies on a misunderstanding of what the great economist John Maynard Keynes was talking about. When I was a graduate student in economics at Northwestern University, Robert Eisner (for whom I served as his favorite Teaching Assistant for 3 years) made us read Keynes. Eisner, a past President of the American Economics Association, was the last professor to require his students to do so. I wonder if anyone reads Keynes anymore. By the persistence of this myth my guess is no, no one reads Keynes anymore. This myth goes like this: we must keep up our consumption because more the saving the more we take away from the spending stream. Lower the spending, lower the output, lower the income.
That is not how it works. As Keynes patiently explains, while what is saved is a leakage from the spending stream temporarily, it reenters the spending stream in the form of an injection: investment. Keynes did not explore the nature of saving but it is the next logical step:
If we save appropriately, in wholeness, without violence, the quality of the saving returns to us in the form of whole, non-violent investment. Once again, both consumption and saving are good, when their natures are appropriate and holistic.
Posted by Abhay Burjor Ghiara at 6/22/2014