I live in New York City. I talk to a lot of businesspeople, investors, and Wall Streeters. I don’t talk to all that many ordinary people.

But I enjoy being interviewed on live radio in other parts of the country. And when I do that, I get the chance to hear what local callers think about the economy, and more importantly, what they want.

They want to save a lot more money. This answer comes up automatically, without qualification, and without exception when you talk to ordinary folks.

When did this desire to save materialize? It was pretty sudden. If you look at official statistics (both the Commerce Department and the St. Louis Fed publish relevant ones), the personal saving rate suddenly ticked up to between 2 and 3 percent about four months ago. Remember, it had been running nearly zero before the financial crisis started. We had one month when personal savings jumped over 5%.

Curious? Sure enough, it was May 2008. That’s when the tax rebate checks went out.

I won’t try to explain the sudden desire on the part of consumers to start saving, after decades of dissaving, although that’s certainly an interesting question. Sometimes the pendulum just has to swing the other way. If you try to associate the shift with some contemporaneous event (like an acute financial crisis, or the gasoline-price spike), you risk mistaking cause for effect.

Periodic increases in the desire of individuals for liquidity are nothing new. In the days before deposit insurance, they appeared as increases in holdings of currency or specie. Now, they show up as higher bank balances. Either way, the money is neither consumed nor invested so it effectively disappears from the economy.

The other way that money disappears from the economy is when the Federal government collects taxes. Did you ever stop to ask yourself why the government collects taxes in the first place? After all, they print their own money, a process that’s free of cost or friction. They don’t need to collect taxes in order to spend money. Instead, they collect taxes in order to manage the overall money supply and prevent inflation.

But there’s no inflation risk at a time when individuals have a strong desire to stop chasing goods with their dollars. That’s where we are now.

So how do individuals contrive to save more money? Simple. They cut down their levels of consumption and investment (savings and investment are NOT the same thing).

Oops. That makes the economy smaller. It also increases unemployment, which raises government deficit spending automatically (through lower tax revenue and higher unemployment compensation). The increase in personal savings is directly correlated with an increase in government deficits. They go hand in hand.

I’ll pause for a minute and let you reread that last paragraph a couple of times. It’s not something you’ll hear in too many places, and you need to let it sink in.

So how can you enable people to increase their savings (which they are bound and determined to do, and nothing will dissuade them), WITHOUT requiring them to cut consumption and investment, and raise unemployment?

Well, go back to the relationship between personal savings and government deficits. It works both ways. If you can increase the deficit, you’ll automatically enable the savings rate to rise.

We already know how Obama wants to increase the deficit. He wants to massively increase government spending. But as we’ve seen in the last two weeks, the spending will be inefficient, wasteful, misdirected toward left-wing priorities, very slow, and not likely to take place in time to inflate the economy in the first place.

And besides, the effect on GDP will be far less than expected because the people want to save the money, not spend it. Have the government spend it, and it’ll land in people’s bank accounts quite soon, rather than increase monetary velocity.

Increasing the deficit by spending is the wrong answer.

What’s the right answer? Easy as pie. CUT TAXES, RADICALLY.

Obama wants to spend $900 billion over two years, a bit more than 3 percent of GDP.

Scrap that whole idea. Instead, let’s cut about 60% of the payroll tax, the entire employee contribution plus a bit of the employer contribution, for two years. That’s about the same sized increase in the Federal deficit.

Except that its effect on the economy will be instantaneous. The additional money that people will save out of their paychecks will displace their forgone consumption and investment. They’ll be able to increase savings as they desire, without cutting their spending. If you abate taxes enough, consumer spending and investment will spring right back, almost magically.

And this is a sharp instrument, not a blunt one. As soon as you’ve stimulated enough, inflation will appear in the CPI (as people pull money out of their mattresses and start chasing goods with it). That’s when you bring back the payroll tax. You can do it on a month’s notice. There’s no overshoot, as with wasteful government spending.

What could go wrong with this? Same as the last time we tried it, in the 1960s. President Kennedy found it easy to cut income taxes. When inflation appeared in 1965, it took LBJ three more years to jam a tax increase through. If it turns out we can’t bring back the payroll tax, the Federal Reserve has other ways to shrink the money supply.

And guess what? If that happens, you’ve just made the tax system vastly more progressive, which last time I checked was a powerful left-wing priority. Let them have this one, if they can’t get billions of dollars for ACORN and condoms.

It all comes back to personal savings. Let them grow. That’s what the people want. It won’t do for the neo-Keynesians to insist that personal savings are the problem. Go with the grain, not against it.

Yes, this is radical. It will also work.