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One of our age’s truly great communicators of economics (as well as a first-rate economic scholar) is Steven Landsburg ("the Armchair Economist [2]"). Steve’s review [3], in today’s Wall Street Journal, of Ronald Wilcox’s Whatever Happened to Thrift? [4] is a gem. Here’s a slice:
The tax code alone is reason to believe that Americans
don’t save enough. Mr. Wilcox offers a menu of other reasons, not all
of them convincing. He repeats the canard, popularized by Robert Frank
of Cornell University, that "keeping up with the Joneses" is a force
for excessive consumption. One could argue equally well that it is a
force for excessive saving. If I am trying to outshine the neighbors’
Mercedes, I might well decide to be extra frugal until I can afford a
Rolls Royce.
Mr. Wilcox makes another fundamental error when he
points to high foreign savings as a cause of excessive U.S.
consumption. When foreigners save, U.S. interest rates drop. This makes
it smart for Americans to consume more. "More" is not always the same as "excessive."
I add only a point that I’m certain that Steve agrees with, namely, the freer are trade and international capital flows, the less meaningful it is to speak of national rates of savings. As a worker I care whether or not my employer is modernizing his operations to increase my productivity; I don’t care (or shouldn’t care) whether the savings used to finance such investments come from Dallas or from Dubai. As a consumer, I care that savings is available to finance innovations and the production of attractive goods and services; I don’t care (or shouldn’t care) — as long as trade is free — if any particular such investment takes place over here or over there, or about the nationalities of the persons who supply the savings to finance this and other investments.