An interesting article from Dr. Bhagwati:-

“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

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Hi Sanjeev

Thanks for posting this.

I actually attended his lecture at Columbia last year when he postulated this in September. The after discusiion lasted for hours into late evening. It started at 2 pm and even though Japan was in bad shape that time( and still is), China and India were speeding ahead while the US was being rocked with SIV woes.

So there was a real healthy discussion and sometimes a tad bit heated. The conclusion was that if India and China spent more their economies would speed ahead and rival the growth of Angola(yeah, you read that right) where the GDP is growing at 20+% instead of the 8-11%.
Concerns of high inflation would arise though

How about that?

A lot of heavies from the financial field that day there. Real rush.

My father-in-law is a Banker from RBI and always tells us "Money Saved Is Money Earned" ...now after reading this we can tell him that this is no longer valid!


Can you also please throw some light on Canada's position in this scenario?

spend spend spend!
u can't take it with you ...
as a famous philosopher once said ...
"He Who Dies with the Most Toys. Wins!"

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happily holi day!

This article is too simplistic to explain the complete nature of why US economic works..


Consumerism may be one of the reasons but historically for the past 50 years they have always been the forefront of technology..
A country with infinite natural resources, where everybody wants to be..
A land of equal opporunity.. A true free and global trader., and unsurpassed military might

Naturally with all these attributes raising capital is very easy for the country

Compare this to Japan.. very few of the attributes hold true.

From the corporate world we know that using someone elses money is always better than risking ur own, if a borrower can be found..

In the past who would have lent money to India and China?

It is only now that these economies are opening up.. What we need is investors flocking to India and china.. Consumerism will automatically take over.. But if it happens too fast.. Inflation will be the deamon..

Quote:

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Originally posted by sanjeevm

An interesting article from Dr. Bhagwati:-

“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

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And I used to think they (US) needs to bomb countries and get all reconstruction and weapons contract for keeping the economy healthy!