'SAVING IS SIN, SPENDING IS VIRTUE'

'SAVING IS SIN, SPENDING IS VIRTUE'
- Jagdish N Bhagwati

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 import more than it exports. 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 $50 billions in US securities.
China has sunk over $160 billion in US securities. Japan 's stakes in US
securities is in trillions.

Result: The US has taken over $5 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 $180 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 $50 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 itʼs 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.

Professor Jagdish N Bhagwati Columbia University
Department of Economics