Damn good thing we didn't listen.
Our economy has increased by 40% while Japan's has been mired in recession the past decade. Europe, another haven for savings and high taxes, hasn't been able to escape 10% unemployment for years.
Now I am hearing those echoes once again. As the Gipper would have said, "Here they go again."
The media wants us to listen to socialist economists that take their cue from European leaders and Ivy League economists who apparently can't count. But to quote the Gipper again, "Trust but verify." Turns out the so-called pundits are wrong again. Household net worth (assets minus liabilities) in the U.S. reached $48.5 trillion in 2004, an all-time high. The media talk endlessly about the $800 billion of credit-card debt Americans have. They fail to mention the fact that we have $4.3 trillion in time deposits and savings accounts, according to David Malpass, chief economist at Bear, Stearns. In addition, Federal Reserve data show that 2004 additions to household financial assets were a net $590 billion, indicating that a heck of a lot of cash flow went into new financial savings.
On a per capita basis, net financial worth in the U.S., which includes mortgages but not houses, is $89,800 compared with $76,900 for Japan. Europe's net worth is far lower. The lesson here is not to put the cart in front of the horse. Our economy remains the envy of the world because we let the consumers run most of it. Free markets work. But if enough people believe we have a low savings rate and stop spending, investing or borrowing, then we will have a recession and the stock market will crash. Then we really would be like Japan and Europe.
This weekend our Business Block has much more on the debate over spending more or saving more. Tune in Saturday 10am — noon ET.
Mike Ozanian is a senior editor at Forbes magazine and a frequent guest on the Business Block.