A Penny saved is a penny earned. That is an old saying that we don’t hear much these days. The fact is that our grandmas knew what they were talking about. There is more power in that statement than even she could imagine. The underlying idea is that it takes effort or sacrifice of some sort to earn money. By saving that penny, we can have money in our pocket without having to work or expend any effort.

We have jobs and make investments in businesses with the expectation of some type of gain. That gain is not free, however. We have to give up something, be it family fun or world travel or any other use of that precious commodity, time. For most people, going to work is a sacrifice. We would rather be doing something else.

With modern tax rates, the power of saving is magnified. The higher the tax rate that you pay, the more beneficial is that saved penny. If your goal is to have $1,000 on hand, for whatever purpose, you can work longer and harder to earn $1,350. Assuming combined Social Security, federal, state and local marginal income tax rates of 35%, a situation which many middle class Americans find themselves, you would end up with $1,000. That would be somewhere in the area of 60 hours of extra work for a family with a combined income of $100,000.

In contrast, by foregoing various unnecessary expenditures, being more thoughtful about the amount of driving, by setting the temperature a few degrees lower in the winter or higher in the summer, and a whole host of other conservation measures, you can have that $1,000 without having to work an extra 60 hours.

Everything that you do in life is a tradeoff. Each choice that you make is the setting aside of one option in favor of a different option. You do that thousands of times every day, without even realizing it. Some things are important to you, to your families, to your well-being and satisfaction and to the results you expect. Other things you do without thinking may actually hurt you and make it more difficult to reach your goals.

One of the choices that you make is whether to consume something now or to save it for consumption at a later time. That later consumption may extensive travel in retirement, a college education, a new car in three years, or even a better, nicer home for your family. Saving is a powerful idea which builds wealth. It is the source of all sustainable progress in any economy.

The schizophrenic macroeconomists first tell you that the government needs to stimulate the economy to pump up consumption, because without consumption, there is no demand for products, and without demand for products, there are no jobs, and without jobs, people can’t earn money to buy things. Saving is a bad word for them. If you are saving, you are not buying, and if you are not buying, you are not doing your part to support the economy. On the other hand, when they have succeeded in creating tremendous bubble economies, they blame rampant consumerism and over-consumption.

The mistake that those economists make is thinking that if you forego consumption now, it is gone forever, like spilled milk or water over the dam. The reality is that savings is merely future consumption rather than present consumption. The dollar that you spend today was a dollar you didn’t spend yesterday. The dollar you save today is a dollar you will spend sometime in the future. Present spending in the overall economy includes present production, but it also includes past production which wasn’t spent. Wealth is the accumulation of the rewards of productivity. Spending is the depletion of wealth.

The amazing thing about a market society, where people are free to negotiate their own terms, is that it is naturally self correcting. When prices are too high, people buy less. This should bring about a healthy deflation. The problems we have now are similar to those of the 1930’s, and for the same reasons. Wages and prices should actually be decreasing, which would benefit everyone. The markets are not free to adjust downward. As in the 30’s, government is doing everything in its power to prevent the bubble prices from adjusting to reality. Monetary pumping and fiscal policy distorts the decision making process for all individuals.

Unfortunately, politicians are spending your penny, whether you want to save it or not.