Saving, spending and crying wolf

Curious Capitalist regular Peter Varhol had an interesting comment on my China column. An excerpt:

I've always been confused by the spend versus save debate ... What is bizarre, I think, is that while economists and economic writers such as yourself bemoan the lack of savings behavior in the US, tax policy decidedly supports spending behavior. In fact, some states go so far as to define interest on savings as "unearned income," with the implication being that since you didn't really earn it, the state is morally justified in taking more of it.

Further, it seems as though consumer spending behavior might be critical to maintaining a healthy level of economic growth in a mature economy (Japan is a good example of the inverse correlation between savings and growth, though I fully realize that correlation does not imply causation).

I can draw several possible conclusions here:

1. The economists are wrong. This one is especially attractive, because they have been crying wolf on savings since the 1980s, and no apparent harm has befallen us.

2. Economists have little or no impact on US tax policy. That certainly seems possible, even likely.

3. We are miscounting or misanalyzing the problem, and the measures and relationships are not at all what they appear to be.

4. As long as the economy maintains a healthy growth rate over time, all other problems are insignificant.

The people crying wolf about the U.S. current account deficit and low saving rate have mostly been journalists and what Paul Krugman long ago dubbed "policy entrepreneurs." The economists (at least the ones with PhDs and jobs at fancy universities) have mostly hung back and said things like, "Hmmm, that is interesting." Or they've authored papers proposing that there might be lots of economic "dark matter" floating around out there that, if we measured it correctly, would make America's balance sheet look a lot healthier. And while they're certainly not unanimous on this, I think most economists would favor a tax system that increased the burden on consumption and lightened it on saving.

As for point 4, that's something I've been saying for a while. But the current account deficit--that is, the amount of new foreign investment needed to just keep the U.S. economy going--has gotten so huge lately that it's hard not to worry at least a little bit about how exactly this particular unsustainable trend will come to an end.

The wolf usually shows up right around the time that those who have been crying wolf for years have been utterly discredited. Have we reached that point yet?