Want to Save the Economy? Invest. - Page 2 of 2

Want to Save the Economy? Invest.

Is Obama promoting an alternative here? Invest, invest, invest? Could be. His pronouncement coincides this week with news that Americans have increased the amount of money they’re saving. The Commerce Department reported on Monday that personal savings rose to 5% of incomes. It makes sense. We keep hearing about how consumers aren’t spending–and how the economy is suffering for it. It’s something economists call the “paradox of thrift”. That is, the more people save during a recession, the more it hurts the overall economic well-being. The theory is that when people don’t spend, business revenues suffer, which then causes businesses to cut back by laying off workers or cutting salaries.

Saving money is clearly what’s best for anyone in this downturn. Having an emergency fund of a few months worth of wages makes good sense. Single-handedly saving the nation by purchasing an even bigger plasma TV isn’t our job, but maybe there’s another way we can help. Ed Fredericks, a professor of finance at Pepperdine University’s Graziadio School of Business and Management, is one of the few people who see a win-win in our new American propensity to save. He believes that “now and for the foreseeable future, an increase in savings is good for the country. This will reduce the deficit through lower imports. As imports decline and savings increase, our capital markets should benefit as surplus savings will go into investments (stocks). This investment capital will go to businesses and entrepreneurs promoting economic activity … ”

Just as I was thinking about all these things this morning, I received an e-mail from a B.E. reader, part of which posed a rather provocative question: Should African Americans invest in stocks in order to prop up the market and make President Obama look good? I would ask the question differently. Is there a way to help the national economy while doing what’s best for myself and my family? Perhaps President Obama has already offered an answer.

What do you think?