

How will US savings rate rise if you don’t penalize consumption? - cwan
http://mpettis.com/2010/04/how-will-us-savings-rate-rise-if-you-don%E2%80%99t-penalize-consumption/

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CWuestefeld
_an undervalued currency shifts domestic demand away from imported goods to
domestically-produced goods, and so increases domestic employment_

This isn't necessarily true. Given that labor is a scarce resource, and that a
worker chooses him employment on the offered compensation, increasing demand
for domestically-manufactured goods may _shift_ employment to manufacturing,
and away from pursuits that may be more productive in the big picture (by way
of the law of Comparative Advantage).

To answer the question posed by the article, here's a way to raise the US
savings rate: don't penalize savings (i.e., investment) so heavily. The
scheduled increase in the tax rate for capital gains, and the double-taxation
on dividends (viz the tax on corporate earnings, which also happens to be one
of the highest in the world) make the potential gains from savings lower. If
the incentive to save is lower, then less will be saved. Hence, if you want to
increase savings, then you must decrease the penalty.

The OP acknowledges this: _like it or not, if you want Americans to save more
you must agree that either it must make production relatively easier, or
consumption relatively more difficult, or both_.

A greater incentive to invest is the same thing as saying "make production
easier". Investments will wind up going toward a better answer than something
else -- else why would anyone want to do it. It'll pay for a new, more
efficient factory, or a new business that builds a better product, etc.

In essence, the OP is arguing to _hobble_ production as a way to let savings
catch up. It seems to me that allowing production to improve through more
investing would be the better approach.

I'm always wary of policies being built on the basis of arguments from
Krugman. He's a brilliant economist, but he's parlaying on top of that to make
arguments for specific policies, and he's really bad at that part. Economics
is value neutral, and doesn't tell us directly what we ought to do in the
world; it just illuminates the choices. Krugman blurs this line, pretending
that economics actually does lead to policy. And he's even willing to
compromise his economics to make an argument -- see
[http://online.wsj.com/article/SB1000142405274870391520457510...](http://online.wsj.com/article/SB10001424052748703915204575103720332317434.html)

