Slate's Bizbox
explainer: Answers to your questions about the news.

Is Spending Money Good or Bad?

By Chris Suellentrop
Posted Wednesday, Jan. 9, 2002, at 11:19 AM ET

For decades Americans were hectored to increase our savings rate. Now President Bush and others say it's our patriotic duty to go out and spend. Which is it?

Good question, but keep a distinction in mind. There is a difference between national savings and personal savings. National savings includes savings (or deficits, the opposite of savings) by the government. One reason you hear less hectoring about the need for more savings is that during the 1990s the government swung from huge deficits to (temporarily, it seems) surpluses. So national savings improved although personal savings did not.

So saving or spending: Which is good? The answer is that they both are. More spending, by individuals or corporations or the government, means more demand, more production, more jobs, more prosperity. More savings means more investment, more production, more jobs, more prosperity. The trouble is that a dollar can be saved or spent, but it can't be both. So every dollar we spend is one less dollar we have saved and vice versa.

It's a trade-off. But because spending is more fun than saving, and because the stimulus payoff from spending—by individuals or the government—is short term while the payoff from saving is longer term, politicians and citizens alike have a tendency to tilt the trade-off in favor of spending. A recession like the one we're in now—especially when combined with an appetite-killing shock like 9/11—is generally considered the right moment for spending to take priority. The danger is that when the moment comes for saving to take priority again, we won't be as quick to embrace it.

Next question?

Explainer thanks Bob Cumby of Georgetown University and this General Accounting Office report. (You'll need the free Adobe Acrobat software to read it.)

Print This ArticlePRINTDiscuss this in The FrayDISCUSSEmail to a FriendE-MAIL
Share on FacebookPost to MySpace!Share with MixxDigg ThisShare with RedditShare with del.icio.usShare with FurlShare with Ma.gnolia.comShare with SphereShare with Stumble Upon
Chris Suellentrop, a former Slate staffer, writes "The Opinionator" for the New York Times.
Join the Fray: our reader discussion forum
What did you think of this article?
POST A MESSAGE | READ MESSAGES
Washington Post
The Washington Post
OPINIONS
Unsung Statesman
Marc Thiessen | By the time he left office, Jesse Helms had become a mainstream conservative.
David Broder: Unabashed Racist