Is higher savings dangerous for the economy?

Indians have always prided themselves in saving money. It is part of our cultural DNA. It is no surprise that the Western notion of excessive credit and consumption seems a bit unnerving.

In the West, say for instance the US, consumption has often been seen as a virtue. Back in 2002 when the US economy was in recession, President Bush urged his countrymen to spend and bring the economy out of recession. And since saving the economy meant well for the country, spending got equated even with patriotism.

But the US was not always like this. A century ago it was a country of savers. In the 1920s it had the highest savings rate among major industrial economies. Now, it has one of the lowest.

An article on Ludwig von Mises Institute shares a very apt perspective on saving and spending. The whole idea of spending-driven economic growth was championed by the renowned economist John Maynard Keynes. Politicians were more than happy to embrace the idea of cheap money, spend taxpayer money and win elections.

So is saving money a bad thing for the economy? We don't think so. Saving is not unproductive. It is only deferred consumption. And it also leads to better allocation of capital and productivity. But politicians don't like to encourage savings. The US Fed's massive QE program is nothing but an attack on savers.

The above is from the mails I receive from Equity master.

Advising consumption is good provided the manufacturing is done in your country.

The consumption of the Americans is not going to help them at all.

It is going to help people thousands of miles away in China.

My daughter-in-law is in the states.

Everything they buy is very good quality and all made in China.

Americans are lucky in that their currency, the dollar, is accepted throughout the world as reserve currency and their government can continue to print it and the world accepts it and gives them goods.

Well, if you can print money and the world accepts it, where is the need to save?