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?

PLEASE—BEFORE YOU CLICK AWAY!

“Lying.” “Disgusting.” “Scum.” “Slime.” “Corrupt.” “Enemy of the people.” Donald Trump has always made clear what he thinks of journalists. And it’s plain now that his administration intends to do everything it can to stop journalists from reporting things it doesn’t like—which is most things that are true.

We’ll say it loud and clear: At Mother Jones, no one gets to tell us what to publish or not publish, because no one owns our fiercely independent newsroom. But that also means we need to directly raise the resources it takes to keep our journalism alive. There’s only one way for that to happen, and it’s readers like you stepping up. Please do your part and help us reach our $150,000 membership goal by May 31.

payment methods

PLEASE—BEFORE YOU CLICK AWAY!

“Lying.” “Disgusting.” “Scum.” “Slime.” “Corrupt.” “Enemy of the people.” Donald Trump has always made clear what he thinks of journalists. And it’s plain now that his administration intends to do everything it can to stop journalists from reporting things it doesn’t like—which is most things that are true.

We’ll say it loud and clear: At Mother Jones, no one gets to tell us what to publish or not publish, because no one owns our fiercely independent newsroom. But that also means we need to directly raise the resources it takes to keep our journalism alive. There’s only one way for that to happen, and it’s readers like you stepping up. Please do your part and help us reach our $150,000 membership goal by May 31.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate