The Growth Experiment: How the New Tax Policy Is Transforming the U.S. Economy

By Lawrence Lindsey | Go to book overview

Chapter 14

Saving the Future

"What reason is there that he which laboreth much, and, sparing the fruits of his labor, consumeth little, should be charged more than he that living idly, getteth little and spendeth all he gets, seeing the one hath no more protection from the commonwealth than the other?"

—THOMAS HOBBES, Leviathan II, 1651

Setting aside resources from current consumption so that an economy can work smarter in the future is the key to rising standards of living. But setting aside resources is not free. It requires a sacrifice of current living standards, the process known as saving.

One of the iron laws of economy is that a society cannot, in the long run, invest more than it saves. At present we are investing more in the United States than we are saving only by borrowing from abroad. This extra investment is beneficial, but it is unlikely that foreigners will continue to lend to us indefinitely. Ultimately we must raise our national savings rate or reduce our rate of investment.

The economics profession is quite clear that the national savings rate for the country must be raised. It is far less clear about how to do that. Most theories about why people save are based on the assumption that individuals save during what they regard as good times in order to prepare for hard times. People in their forties and fifties realize they are at their earnings peak and set money aside for retirement. Families also save for unusual expenses such as college education or illness. As a rule, however, the traditional motives for savings have been blunted

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