Posted on 02/28/2015 9:33:36 AM PST by Kaslin
If everyone saved more, wed have a problem. Robert Shiller
Last week, in promoting a new edition of Irrational Exuberance, Robert Shiller, a Nobel Prize-winning economist from Yale University, said he is encouraging his students to save more, because the golden age of investing is over and investors will need to save more to have enough for retirement.
Then, in an interview with Yahoo Finance, he nodded his head with approval when the interviewer said that saving more would ruin the economy. Shiller added, If everybody saved more, then wed have a problem. The interviewer went on to say, Shiller is referring to the idea that if everyone saved more, they wouldnt be spending money on discretionary items and the U.S. economy is heavily dependent on consumer spending.
Of course, this so-called paradox of thrift is nonsense and might only apply during periods of Great Depression when savings were stashed away as cash under a mattress or stayed idle in a bank account.
In todays modern economy, nothing of the sort happens. If everyone saved more, the funds would be invested in the stock market, or in bank accounts where the funds would be invested in businesses.
There is actually no empirical evidence of a paradox of thrift. In fact, just the opposite is true. A St. Louis Fed study of a few years ago concluded that higher savings results in higher economic growth.
It also is not true that consumer spending dominates the U.S. economy.
My own work demonstrates that business spending (my B2B index) is almost twice the size of consumer spending in the United States, based on the new Gross Output statistics that the Bureau of Economic Analysis (BEA) now is using.
Read my lead op-ed in the Wall Street Journal on this subject.
In short, saving more is a good idea, for individuals and for society.
That “Nobel prize winning author” has no notion of Economics. His training was probably in Finance and in Business. That is not Economics. In the real world saving IS investment. It is the only way for there to be actual as opposed to apparent and false growth of the economy. Money to finance growth must come from money saved, not consumed. Inflationary “espansion”
is the attempt to create assets out of nothing. Only God can do that. “Growth” based on borrowed money that is created out of nothing rather than grown by savings is illusory and is accompanied by rising prices so it is not expansion at all. At best it is displacement of some goods and services by others and more likely constitutes real contraction of the Economy because it adds to debt. Things must level out at some point. An inflationary “expansion” tends to even out abruptly and catastrophically.
Since most people are in debt, saving and paying down debt is certainly better than financial losses incurred by lenders via bankruptcy and loan settlements.
As for “go into debt to prop up the economy”, many national governments went into more debt since 2008 to prop up the economy and rev things up. The end result is tepid growth, now a decline again if not deflation, and higher debt service payments.
Everything the gov is doing is wrong to save anything but Wall Street and corporate profits.
As for the dangers of “oversaving” see Japan’s struggles to reignite their economy when people wouldn’t spend.
Ok so spend more, go into massive debt, borrow money out the wazoo and live like royalty. Works for the Federal Govt.
Spend EVERYTHING YOU HAVE ... we need help for this economy!
Even 30 years ago today’s headlines would have been laughed at.
Here’s a novel old fashioned idea— dont spend more money than you take in. Apply that across the board and we would all collectively be in much better financial health.
Saving is investing. Also bank deposits do not just sit there they are invested too
More flak from the “spend your way to prosperity” idiots, just like we heard right before the crash of ‘08.
People confuse Federal Reserve money printing and debt monetization as saving
Savings and financial security is good for the Elites. Everyone else should march into debt slavery like good little boys and girls. His positions seem entirely consistent for a Yale Elite.
Japan’s savings rate has steadily dropped over the last two decades as 1) society has aged, which is a natural economic result and 2) japanese government strip-mining of its population through massive money printing and zero interest rates for many years running. Who would save when ones own government steals it from you to chase their Keynesian fantasies.? This is not natural
Let me add a couple more.
EAST is WEST
UP is DOWN
Obama is NOT a SOCIALIST. /s
I’m doing my part!
Your statement is TRUTH in a nutshell.
The U.S. economy, which used to be PRODUCTION-based is now, and has been for awhile now, CONSUMER-based.
If we don't spend the economy becomes stagnant.
That's WHY all the government subsidies and handouts. They're doing everything possible to keep the "house of cards" from collapsing.
The worse it is--the better it is for us, comrades.
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