A standard nostrum of economic policy discussion during the past several years has been that the personal saving rate must be raised in the United States to stimulate investment and improve the economy's competitiveness.

This conventional thinking has girded persistent recommendations to curb consumption -perhaps through a national sales tax or higher excise taxes- as well as to reduce the government deficit.

But the basic economic logic underlying this stance is faulty. Policies designed to raise the saving rate will do little in the current economic climate to stimulate investment. They also run the risk of dampening total demand by holding down consumption.

To mount this challenge to the conventional wisdom, one must begin by making a distinction between different forms of the saving-stimulates-investment argument .

The first is based on simple arithmetic. It is an axiom of national income accounting that, properly defining the magnitudes, investment must equal saving. If money is to be spent on investment goods, it must not be spent on consumption goods. There's no escaping that basic law of income flow arithmetic.

But this accounting axiom does not mean that the only way to raise investment and saving together is to increase saving first. It may well be the case that the best way to boost investment and saving is to boost investment first- borrowing funds in the short run to finance that investment- and to wait for increased saving to follow.

The critical issue, then, involves not economic accounting but economic behavior. Will an increase in saving stimulate investment? Or, conversely, will an increase in investment boost saving?

Let's start with the saving-investment linkage. There are three relatively powerful reasons for suspecting that an increase in saving will not necessarily or even probably prompt a subsequent growth in investment.

First, it is quite likely that most firms seeking to fund investment able to borrow whatever additional funds they need from the banks whether or not personal saving has recently been squeezed.

Second, empirical evidence on the determinant of Investment provides little (if any) support for the idea that personal saving has direct or indirect effects on the flow of investment. The most important influences on investment, other things equal, are the level of aggregate demand and the expected rate of return on investment. Once one controls for those factors, it is difficult to find evidence that investment is higher if personal saving is higher.

Third, credit market patterns in the 1980s provide proximate support for the idea that the availability of credit market funds by itself is not enough to foster investment. Hundreds of billions of dollars have been devoted to mergers and speculation during the past decade, indicating easy and ample access to funds for investment in financial assets. But real net fixed investment the kind of investment in plant and equipment, we need to improve the economy's productivity has continued to stagnate even during the long expansion preceding the current recession.

One of the most important determinants of saving is the level of aggregate income. As income increases, consumption and saving rise. Since investment- with its famous multiplier- is one of the keys to stimulating demand, it follows that increased investment will increase saving after a brief lag.

And if borrowing to finance increased investment results in any pressure on available funds, leading to an increase in short-term and medium-term interest rates, then higher interest rates probably will also induce increased saving.

If saving will not necessarily stimulate investment but investment will quite probably spur saving, then obviously the trick is to find ways directly to boost investment.

As it was noted above, the two most important influences on investment are the level of aggregate demand and the expected rate of return on Investment. The investment-demand relation is a little like the chicken and the egg. It's not so easy to raise the level of demand without first raising the level of Investment.

Which leaves us with the problem of the expected rate of return on investment. All other things equal, the profits that investors expect to earn on fixed investment will be a function of the difference between labor productivity and hourly earnings. And since earnings need to be kept relatively high to help sustain consumption, the key to an autonomous boost in investment comes back once again, as with so many other issues I've discussed in this column, to the problem of productivity.

If we're concerned about boosting investment and improving U.S. international competitiveness, we should pay less attention to raising the saving rate and more attention to improving productivity growth.