I received so many comments and questions about my March 1 column on negative consumer saving that it seems appropriate to revisit the subject. First, a clarification. Data collected by the Commerce Dept.'s Bureau of Economic Analysis, which show a negative saving rate, do include contributions to pension plans, IRAs, 401(k) plans, SEPs (Simplified Employee Pensions), and Keoghs. Many of you wrote to say you save an average of 5% of your income, so how could saving be negative? Kudos to all who put money aside for retirement. But the bald fact remains that most consumers do nothing of the sort. They live from one paycheck to the next, and they borrow more than they earn. How is this possible? There are several tricks that spenders have learned. First and probably most important, they refinance their house every year, which results either in a lower monthly payment or decreased equity in the home. You certainly don't think all those home-improvement loans actually go for home improvements. At the end, even if housing prices rise by the national average of 5% per year, they will not have any equity left. But for all too many consumers, that day is a long way off. The average consumer doesn't play the stock market, but the Internet has shifted the balance. No longer do you have to listen to some stuffy old broker say over the phone that your investment strategy is heading straight for a negative balance. Of course, that can happen over e-trade as well, but in recent months, although many of the Internet stocks have cooled off, they are still way above their IPO prices. Some consumers aren't very fussy about bankruptcy, either. Just run up the bills and when they get too onerous, repudiate all your debts. Then start all over again with a new batch of credit cards. Isn't there something terribly wrong with the current scenario, in which the personal saving rate has fallen to -0.7% -- even lower than when I wrote about this last time? It all depends on who you are. If you are a retailer whose sales have surged because of easy credit, maybe the current situation seems all hunky-dory. If you are one of those new hotshot online brokers who just went public and are now worth $1.5 billion because the market is valuing your stock based on earnings in the year 2028, you probably don't see anything wrong, either. And even if the banks have a higher loss ratio, when lenders charge poor credit risks 22% per month, as is the case in Florida, they're not too worried about eventually being repaid. There is, of course, someone who is paid to worry about all this, and you all know his name: Alan Greenspan. Since Greenspan took office in 1987, he generally has done a very credible job, and the one recession we had in 1990-91 was caused at least as much by Saddam Hussein as it was by errant Fed policy. This time, however, Greenspan is making a mistake by sitting pretty. The Fed needs to tighten, and it needs to do it now. I say this not to be a killjoy but because common sense dictates that a consumer-led economy that keeps growing at above-average rates solely because consumers are spending more than they earn cannot continue to prosper indefinitely. As long as inflation was declining, there wasn't much use for the view of a few curmudgeons like myself who claimed that the economy couldn't remain in suspended animation forever. But in recent weeks the inflation stats have started to turn dangerous again and the inflation outlook appears a great deal more ominous than it did two months ago. There is no point pretending the economy is still in balance. It is a question of pay me now or pay me later. If the Fed refuses to reverse the excessive growth in consumer spending and the negative rate of saving now, it will have to pay a much higher price later. In the end, an economy prospers by boosting capital spending and productivity, not by having consumers spend beyond their means. Michael K. Evans is president of the Evans Group and professor of economics at the Kellogg School of Business, Northwestern University, Evanston, Ill. His e-mail address is [email protected].