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Consuming or Savings, Which Is Better

Keynesian Theory teaches us that consumption of one sort or another, individual or government, drives aggregate demand. Therefore maximizing today's consumption means maximizing todays GDP. The problem arises "tomorrow," when your opportunity set is not appreciable greater than today's because there has been no savings "today."

Classical economists such as J.B. Say and Adam Smith would argue that you save your way to prosperity. True, you sacrifice consumption today. But that's the whole point of savings; so you have a greater potential for more consumption tomorrow. What's more, if the savings are wisely invested, the sum of today's and tomorrow's consumption will be greater than if you had consumed everything today.

The highest possible growth model is to consume as little as you can, and save and invest the rest for as long a period as possible. That appears to be the Chinese model.