[ExI] Savings and wealth

[Stathis Papaioannou]

2009/5/30  <dan_ust at yahoo.com>:

>> If people will never buy anything in the future because
>> they intend to
>> die with the greatest possible amount saved, the
>> entrepreneur will
>> have nothing to do. All saving and no spending is bad for
>> the economy.
>
> Yes, but, again, are we talking about real people?  Who does this and how many of them are there?  Keynesians would have us believe most or enough people act this way, but it seems far more likely that people save with various consumptive ends in mind -- e.g., saving for retirement, saving for a cruise, saving to buy a home, saving up for a wedding.  Sometimes the ends might be more vague -- as in the case of someone who decides to save because he fears losing his job.

If they save only to spend it at a later date, then that will show up
in the statistics as a large drop in savings. If I eat out every day
or save up to eat at a really expensive restaurant once a week it
amounts to the same thing.

> You're creating an extreme situation here to justify what?

It's an extreme example but there is a continuum between saving
everything and saving nothing. You have been claiming that saving is
good, but at some point on the path to becoming an extreme miser
saving must turn bad.

> Also, "bad for economy" means what?  That's a subjective construct.  The rate of savings reflects personal personal preferences.  With people interacting through a free market, such preferences would be coordinated with everything else -- not perfectly but much better than the alternatives.  The only way bad could be measured here is how well such coordination takes place -- given different preferences to save.  If everyone suddenly decided that they wanted to consume all their income (and savings), that wouldn't be bad for the economy.  It would just be.  It'd be unlikely under most conditions.
>
> Likewise, if people decided, suicidally, to stop all consumption, that wouldn't be, from the standpoint of economics, bad, but just their preference.  It would be rather short-lived -- as everyone would die off in short order -- but economics is silent over whether this is a good or bad thing.

If everyone decided to reduce consumption to a subsistence level
because they wanted to save as much as possible, that would be bad for
everyone, since the economy would go into depression and most of the
savers would end up unemployed and therefore unable to save.



-- 
Stathis Papaioannou