Can Personal Savings Rescue Us From an Upcoming Recession?

If the coronavirus shock puts the economy into a recession, how should we respond? Here’s the chart that makes me ask the question:

In all recent recessions, the personal saving rate has plummeted beforehand, which makes it hard for consumers to respond to the shock of losing income. Their only option is to reduce their consumption. But that’s not true right now. After the Great Recession, the saving rate spiked upward and has continued to grow at a modest rate ever since.

So here’s my question, aimed at serious economists because it’s above my pay grade: would a normal stimulus work in a case like this? If a recession hits and savings are low, people are forced to cut back on spending and this is what propels the recession. Putting big chunks of money in their pockets without bothering too much about targeting it is obviously a good thing. But if savings are high, what’s the point? People have money to spend, so that’s not the problem. They’re just afraid to spend it (or can’t spend it because businesses are shut down).

There are, of course, plenty of individuals who are going to lose their jobs and can’t make up for that out of savings. On a purely humanitarian basis, we should do everything we can to help them. I have no argument with that. My question is solely macroeconomic: would a large, general purpose stimulus be much help in a situation like the one we face now, where savings are high and the spending shock is obviously extremely temporary?

SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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