Show SA By GEORGE HAGEDORN One of the most interesting and unexpected of recent economic economic eco ceo developments has been the increase in the rate of personal personal personal per per- saving During the Ule second quarter of 1964 individuals saved 82 per cent of their total income after taxes This is the highest percentage recorded in inthe inthe inthe the past six years TIlE THE 82 per cent compares with a 68 per cent savings rate in the same quarter of 1963 The gain may not seem spectacular spectacular spec spec- spec spec-I but to achieve this individuals individuals individuals in in- had to save one ter of the increase in their total incomes over the year This has occurred while white the economy has been gaining upward upward upward up up- ward momentum The combination combination combi combi- nation of a general economic rise with an increase in the savings rate a new look at some previously accepted accepted accepted ac ac- ac- ac theories WHEN THE tax cut was first being discussed administration witnesses argued that what was most needed was an increase in consumer demand and that this his could be achieved by cutting cutting cutting cut cut- ting personal income taxes When the objection was raised that the increased demand could be frustrated if people saved rather than spent their gains from tax reduction the I administration spokesmen answered answered an an- I that this was an unlikely unlike unlike- ly development People could be relied on they said to continue spending the same old percentage of their after tax after tax incomes Well Vell for the time being at least people people peo peo- pIe are saving an unexpectedly large part of their gain from tax reduction But strangely this seems not to have slowed down the general economic up up- surge Apparently there is something wrong with the Underlying underlying un Un- notion that a high sayings savings savings sav say ings rate is bad for business in that it detracts from consumer demand IN FACT the increase in savings had helped to restrain inflation during this period of I rising economic activity Capital Capital Capi Capi- tal tat outlays by business have been increasing rapidly To the extent that they can be fi financed financed financed fi- fi by drawing on voluntary voluntary voluntary volun volun- tary savings inflationary Increases increases in in- creases of bank credit can be avoided The increase in the savings rate may be only temporary That is to say it may give us protection from inflation only for an interim period But even what has happened so far has hasan hasan hasan an important bearing on economic eco cco- issues issue which will wm surely arise anse again in the future SA SAVING VING is not an evil to be avoided on the ground that it puts a drag on total demand A high rate of saving can be bea a stabilizing force and one which promotes non inflation ary economic growth We Ve might keep this in mind when the next opportunity for tax reduction comes along The idea that it ought to be given to the people who would spend it most rapidly and that we should avoid giving it to people who might save it doesn't seem to hold up under exper exper- lence |