STOP SAVING NOW!

STOP SAVING NOW! Nonsense Economics in the US of A….

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.

The rush to hoard cash and pinch pennies is understandable, given that some $13 trillion in net worth evaporated between mid-2007 and the end of 2008. But while it makes complete microeconomic sense for families and individual businesses, the spending freeze and collective shunning of nonguaranteed investments is macro-economically troubling. Especially if it persists once the credit crisis passes.

For our $14 trillion economy to recover and thrive, hoarders must open their wallets and become consumers, and businesses must once again be willing to roll the dice. Nobody is advocating a return to the debt-fueled days of 4,000-square-foot second homes, $1,000 handbags and $6 specialty coffees. But in our economy, in which 70 percent of activity is derived from consumers, we do need our neighbors to spend. Otherwise we fall into what economist John Maynard Keynes called the "paradox of thrift." If everyone saves during a slack period, economic activity will decrease, thus making everyone poorer. We also need to start investing again—not necessarily in the stock of Citigroup or in condos in Miami. But rather to build skills, to create the new companies that are so vital to growth, and to fund the discovery and development of new technologies.

Is this era of thrift a temporary phenomenon? Will we revert to our risk- taking selves as soon as we latch on to the next New, New Thing? Those are the $14 trillion questions. Earlier this decade, we transitioned effortlessly from the dotcom bubble to a housing and credit bubble, which suggests a powerful resiliency. But financial trauma can leave deep scar tissue, as it did after the Great Depression.

It's tempting in this period of contraction to mimic Thoreau, to live simply and deliberately. But if we lose our penchant for gain and risk, we'll lose some of the essence of what makes us American. In his book "The Hypomanic Edge," psychologist John Gartner argues convincingly that over the centuries, the American population, continually infused with immigrants, has self-selected for hypomania—a tendency to action, an appetite for risk, an endless belief in human possibilities. While the 1990s were "a perfect storm of economic hypomania," Gartner says, "today the mood is anything but."

The markets, and the economy as a whole, are continually buffeted by the twin forces of fear and greed. For the past year, fear has clearly had the upper hand. But over time, as fear subsides, our inborn instincts to improve our lot—Adam Smith would call it self-interest—will make a comeback.

In the meantime, it wouldn't hurt for some of our most successful risk takers to step up. The recently published Forbes list shows there are well over 300 American billionaires. And while their net worths have suffered, they still have the means to provide the risk capital that is now in short supply. That's what the nation's wealthiest family did during the Great Depression. In 1931, in the depths of the Depression, John D. Rockefeller Jr., who had spent his life giving away his father's fortune, embarked upon a massive, private stimulus program: the construction of Rockefeller Center. The project, the largest development in New York between 1931 and 1946, employed some 75,000 people, from stonecutters in granite quarries to artists, architects and welders. "It showed a great deal of confidence," says Daniel Okrent, author of the definitive book on Rockefeller Center, "Great Fortune." Conceived as a sort of philanthropic, private-sector public-works project, Rockefeller Center turned out to be a home run as an investment—and still supports thousands of private-sector jobs. Its shops and plazas may be quiet today. But someday the hordes will return—and let's hope it's sooner than later.

(Adapted from an article in the Washington Post and appropriately modified).