tag:blogger.com,1999:blog-38606399.post6467315667064789436..comments2023-09-23T00:38:53.296-07:00Comments on Money and Such: Is Saving Money Bad for the Economy?Unknownnoreply@blogger.comBlogger5125tag:blogger.com,1999:blog-38606399.post-59514777319749133472009-03-05T12:48:00.000-08:002009-03-05T12:48:00.000-08:00Saving should be a rational reflection of one's ab...Saving should be a rational reflection of one's ability to do so, subjected to the cost and constraints of current versus future consumption, and also the underlying social welfare structures that either support or discourage you from saving.<BR/><BR/>Some Asian countries have high saving rates because there's little social safety net. This tradition becomes manifested in the mentality of those cultures over several generations, and somehow, they are known as natural savers. <BR/><BR/>Germany, France, and a number of European countries also have relatively higher saving rates. But those economies don't go on spending sprees, why is that? Perhaps it's because of the lack of credit creation from thin air, and that people simply cannot get credit to spend what they don't have. But given the chance: the liquidity, the flashy cars, the crazy houses, they would never trade future prosperity for instant pleasures, right?<BR/><BR/>I don't believe that's true. The same way that I don't believe Americans are natural spendthrifts. Easy credits, media cheer-leading, unscrupulous business practices have equal parts to play in how America got to where it is now. Not just America. What about Iceland and Ireland?<BR/><BR/>Japan couldn't seem to open its purse string (even before this recession hit) because there was no indication that the fundamental problems of the economy were fixed. By not spending on education, health care, and instead on building roads and bridges, the Japanese sorely lack the confidence needed to go back to its somewhat conspicuous spending days (not to say that's the aspiration here, but ...).<BR/><BR/>So back to the question of saving and how much, or little, America should do to find that equilibrium. I think that balance will come when the debts are paid down, liquidity is restored, housing prices have come down to a sane level, and people generally believe there is sustainable social security and medicare. Before those problems start to patch up, any bullishness might be sectoral, purely temporary, or government propped.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-38606399.post-91679639460908310632009-03-05T09:13:00.000-08:002009-03-05T09:13:00.000-08:00Ren - of course, the example I gave is simplified....Ren - of course, the example I gave is simplified. Naturally, the restaurant owner would not have a 100% margin, but the logic holds if you take the entire supply chain into account (e.g. the waiters, the restaurant owner's suppliers etc.)<BR/><BR/>Plonkee - I think that parallel is a very good one. The best out come for each individual is to save, and to have the rest of the country continue to spend...<BR/><BR/>Joel - there is no doubt that saving more helps an individual saver. <BR/><BR/>As you point out, this recession is global, and I do think that you have a valid point about exporting much of any dollar we spend.<BR/><BR/>Thanks for the comments guys.Shadoxhttps://www.blogger.com/profile/11742366461186295248noreply@blogger.comtag:blogger.com,1999:blog-38606399.post-32048682834581078352009-03-05T06:49:00.000-08:002009-03-05T06:49:00.000-08:00Here is where I think the logic fails. The US is n...Here is where I think the logic fails. The US is not a self sustained economy. In fact a major part of our consumption goes to either manufacturing (i.e. China), energy (OPEC etc.) or raw materials (Russia, Brazil etc.).<BR/><BR/>So when we decide to spend our money on say a flat screen TV, only a fraction of the money stays in the US. That is how we exported our recession to China and the Middle East.<BR/><BR/>Now, in very short term, saving may cause some pain since it keeps the money in the hands of the haves (people who are cash positive) and out of the hands of the have nots (people who lost their minimum wage jobs at say a Circuit City) but long term, these saved funds will serve as one of two great uses:<BR/><BR/>* A cushion to prevent personal financial collapse if the saver looses his job (keeping him off welfare)<BR/><BR/>* A major purchase (such as home upgrade) once the recession fears ease.<BR/><BR/>Of course, there is the best kind of saving which this site prescribes to which putting the money in the stock market. This helps boost company value and may in itself help end the recession by creating a positive psychology.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-38606399.post-667937716455652892009-03-05T04:36:00.000-08:002009-03-05T04:36:00.000-08:00This sort of thing always reminds me of the prison...This sort of thing always reminds me of the prisoner's dilemma. <BR/><BR/>I also understand that if everyone saves a lot all of a sudden, when the economy is expecting people to save then it's a problem. If only a few people do it, or it changes gradually then it's not an issue. Not an economist though, so not sure.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-38606399.post-49072357535616367012009-03-04T15:20:00.000-08:002009-03-04T15:20:00.000-08:00Of course, it's much more complicated to that, and...Of course, it's much more complicated to that, and the devil is in the details.<BR/><BR/>The restaurant owner would not have realized $25 in profit, so it is not an even trade. Now, assuming his costs are affected the same way, it may still equal out. But there are taxes as such to factor in as well.<BR/><BR/>I think the main thing is that there's a good chance that the business owner can make better use of the money than sticking it in a savings account. (Where "better" = "more economically useful".)Anonymousnoreply@blogger.com