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Economics

Are Americans Saving Too Much and Spending Too Little?

Many people think income and wealth inequality is a social problem, but few have offered a coherent explanation of why it’s bad for the economy. One argument is people who live in an unequal economy consume less. Since consumption is 70 percent of the U.S. economy, that means less growth. Economist Larry Summers explained why in the New York Times:

Not everyone agrees that juicing consumption is a strategy for long-term growth. But let’s say that it is. Summers is arguing that, in the aggregate, we’re spending too little (and therefore saving too much). But savings right now is lower than its historical average—it was higher when there was more growth and less inequality.