Why prefer spending to savings

Prime Minister Key appears to believe that it is in the interest of the nation for us all to take our tax cuts and throw them around – either spending them or finding other people to spend them for us.  However, I don’t see why we have to rely on consumption now or giving to charity to do this.

Our credit market is working – if we give money to the bank they will lend it out to someone that will spend it.  The person that spends it will earn income in the future and pay the bank back, and the bank will pay us back.  Where is the issue here?  The focus really shouldn’t be on spending – it should be on production.

Now, if the credit market was broken in NZ there could be a different story.  Hell if unemployment was nose-bleedingly high you could make a case for it – but it is 4.6%.

Bernard Hickey at Interest Blog expresses similar sentiments here.

4 replies
  1. Matt Nolan
    Matt Nolan says:

    @Nigel Kearney

    I could definitely imagine banks in the US being classed as charities – they are the ones stuck with these houses that are falling in value. At least in NZ the liability stays with the homeowner outside of bankruptcy – in the US people can just send the keys to the bank and forget about the house!

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