NEO-ECONOMICS

"SAVING IS SIN, SPENDING IS VIRTUE"
An article by an Indian Economist (bit old but still true)

Japanese save a lot. They do not spend much.
Also Japan exports far more than it imports.

Has an annual trade surplus of over $100 billions.

Yet Japanese economy is considered weak, even collapsing.

Americans spend, save little. Also US imports more than
it exports, and has an annual trade deficit of over
$400 billion. Yet, the American economy is considered

strong and trusted to get stronger.

But where from do Americans get money to spend?

They borrow from Japan, China and even India.
Virtually others save for the US to spend. Global
savings are mostly invested in US, in dollars.

India itself keeps its foreign currency assets of
over $130 billions in US securities. China has sunk
over $300-400 billion in US securities.
Japan's stakes in US securities is in trillions.

Result:
The US has taken over $15 trillion from the world.

So, as the world saves for the US, Americans spend
freely. Today, to keep the US consumption going, that
is for the US economy to work, other countries have
to remit $120 billion every quarter, which is $2
billion a day, to the US! Otherwise the US economy
would go for a six.

So will the global economy. The result will be no
different if US consumers begin consuming less.

A Chinese economist asked a neat question. Who has
invested more, US in China, or China in US? The US
has invested in China less than half of what China has

invested in US.
The same is the case with India. We have invested in US
over $130 billion. But the US has invested less than $20
billion in India.

Why the world is after US?
The secret lies in the American spending, that they
hardly save. In fact they use their credit cards to
spend their future income.

That the US spends is what makes it attractive to
export to the US. So US imports more than what it
exports year after year.

The result:
The world is dependent on US consumption for its
growth. By its deepening culture of consumption, the
US has habituated the world to feed on US
consumption. But as the US needs money to finance its
consumption, the world provides the money. It's like a
shopkeeper providing the money to a customer so that
the customer keeps buying from the shop. If the
customer will not buy, the shop won't have business,
unless the shopkeeper funds him. The US is like the
lucky customer. And the world is like the helpless
shopkeeper financier.

Who is America's biggest shopkeeper financier?

Japan of course. Yet it's Japan which is regarded as
weak. Modern economists complain that Japanese do not
spend, so they do not grow. To force the Japanese to
spend, the Japanese government exerted it self,
reduced the savings rates, even charged the savers.
Even then the Japanese did not spend (habits don't
change, even with taxes, do they?). Their traditional
postal savings alone is over $1.2 trillions, about
three times the Indian GDP. Thus, savings, far from
being the strength of Japan, has become its pain.

Hence, what is the lesson?

That is, a nation cannot grow unless the people spend,
not save. Not just spend, but borrow and spend.

Dr. Jagdish Bhagwati, the famous Indian-born economist in
the US, told Manmohan Singh that Indians wastefully
save. Ask them to spend, on imported cars and,
seriously, even on cosmetics! This will put India on
a growth curve.

"Saving is sin, and spending is virtue."
Before you
follow this neo economics, get some fools to save so
that you can borrow from them and spend.

This is what US has successfully done in last few decades.

Courtesy: Joji Scaria