The small headline on my iPad said, “Rising Income is Saved, Not Spent.” I know this will sound like a quibble, but bear with me. It is a quibble, but the headline encourages a popular misconception with possible adverse policy implications.

The thing is that the national income accounts and logic assure that total spending equal total income. I know that sounds Keynesian, but sometimes Keynesianism is a simply a matter of arithmetic. (The reverse is not necessarily the case.) Consumer spending need not (and should not in a healthy economy) equal total income. Ideally, robust consumer saving (disposable income minus consumption spending) would exist and be used to finance domestic investment spending. The subtraction from total spending caused by consumer saving would be made up by additional domestic investment, and the better mix of consumption and investment spending would generate more economic growth.

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