Spend? Save? The debate continues

In an article today, Spend or Save? Trick Question, The New York Times' David Leonhardt looks into a question I posed a week ago, and which NBC's Chuck Todd asked the President  Monday night - whether it is best for American consumers now to spend, or save.  He begins:

It's your fault. Part of it is, anyway. You, the American consumer, spent too much money. You bought too much house, took on too much debt and generally lived beyond your means. Your free-spending ways helped cause the worst financial crisis since the Great Depression.

And now you're going to have to do your part to end the crisis. How? By spending. Enough already with the saving that many of you have suddenly begun doing. This very moment, Congress and President Obama are preparing to send you a tax rebate, to inspire you to stimulate the economy. So go out and stimulate. Spend as if the future of your country depended on it.

John Maynard Keynes, the great 20th-century economist, would have appreciated the apparent absurdity in these mixed messages. He coined a phrase, "the paradox of thrift," to point out that what was rational for an individual during hard times - saving money - could be ruinous for an entire economy. Eventually, many of the savers may end up out of work because everyone else is saving, too.

It's enough to make you wonder what exactly you're supposed to do. At his news conference on Monday night, Mr. Obama was asked directly whether people should spend or save their rebate checks. He ducked the question.

Fortunately, though, it has an answer. There are a few ways to help both your own finances and the country's.

Read on.  How Americans answer this question will go a long way to determining the length and depth of the current global recession.  Leonhardt concludes that the best course is for America to invest in projects that provide both short term stimulus and prepare America for future growth and prosperity.   This is the same conclusion Rob and I reached in our November memo, A Stimulus For the Long Run, and has been at the core of our advocacy these past few months.

We are very proud that many of the items we advocated in this memo - health IT, greening federal buildings and vehicle fleets, extending unemployment insurance and backstopping the states, investing in broadband and 21st century schools, modernizing the electrical grid - are still in the mix for the final Economic Recovery legislation and are at the very core of our emerging economic strategy.