Saving why are the govermnet so annoyed by us saving money?

johnnyskeleton

SupaNova wrote: »

Here is a decent article criticizing Keynes theory and Krugman's claim that Keynes has been proved right:
http://www.acting-man.com/?p=12828

There is valid criticism of krugman in that he wishes to implement half of the theory without the other necessary half. But I can't accept the premise that governmet capital projects discourage other projects. I would have thought t is almost beyond argument that proper infrastructural investment will have strong long term secondary returns. Didn't read the rest of the article because it was far too rhetorical for me and based on partisan us politics.

pacquiao

johnnyskeleton wrote: »

so how do you explain the increasein vat? Surely by your logic the increase of vat is designed to discourage spending and incentivise saving, or at least neutralise the effects of dirt increases. I would suggest that increasing dirt is a means of obtaining more tax income in a manner that has relatively little impact on peoples behaviour. Likewise with vat, they simply think they can get away with it. Increased dirt has not significantly impacted the propensity to save in my view.

Also, you treat keynesian economics as though it postulates that any spending is good so large social welfare or civil service pay is good. But the suggestion by Keynes was more by way of example than actual prescription. Keynes also emphasised that investment be made in projects with the greatest likely return.

So most advocates of keynesian econonomics would argue for increased government saving during the bubble (eg using increased stamp duty to pay down debt or to put in reserve) which would then permit a road building project or other infrastructural projects to take place.

No economic theory, that I can see, advocated tax breaks to increase house buying, using the net gain in tax to spend on increased current expenditure and then when it all goes wrong borrow money to bail out the banks and keep current spendig high. None of these things fit into Keynesian theory or any other common theory for that matter. But these policies are immensely popular with the voters and are also thr short term reactions of a country in trouble.

I don't know if you are aware of this or not? But,America doesn't have to borrow anything. I mention America here as you don't seem to be talking about any country in particular.

SupaNova

johnnyskeleton wrote: »

But I can't accept the premise that governmet capital projects discourage other projects.

It is not that Government projects discourage other projects, it is that they prevent them from taking place. If government decides to pass a bill for 1 trillion in stimulus, it has to bid for resources and labor away from the private sector. There is no disagreement between schools on this, only the Keynesians make the case that the private sector is not making full use of resources and labor and point to statistics like the output gap to try and make their case.

I would have thought t is almost beyond argument that proper infrastructural investment will have strong long term secondary returns.

I don't disagree, but see little hope of stimulus being used wisely, or maybe according to Keynes it doesn't have to, just pay people to dig holes and fill them up again.

andrew

SupaNova wrote: »

The Austrian criticism is based around Say's law which you gave a good summary of. The relationship between savings and investment is broken when increasing the supply of loanable funds is done artificially, i.e. increasing the supply of loanable funds without an increase in actual savings. So you have Say's law in action, but in a very unnatural and distortionary manner. According to Austrian theory the relationship isn't broken because people are saving too much now, but is broken as an inevitable consequence of meddling with interest rates and artificial credit expansion.

I'm not sure I understand what you mean. As in, I understand that interest rates are 'artificially' low, but if still no investment or loans occur at this low interest rate, then none would occur if the interest rate was higher. So the relationship is broken because of banks don't want to lend and companies don't want to borrow in spite of low interest rates which have been 'meddled with'.

southsiderosie

SupaNova wrote: »

Here is a decent article criticizing Keynes theory and Krugman's claim that Keynes has been proved right:
http://www.acting-man.com/?p=12828

Please don't just post links without giving us some summarization of the content, thanks.

SSR

skelliser

The golden geese of this resession; PS pay; millionaire property developers and politicians pay and expenses need to be protected at all costs and aim to come out of this as unscathed as possible.

The rest of us get screwed.

That is the theory of economics in ireland.

The thing is none of it is working. Austerity doesnt work, they may have gotten away with it in the 80's but people are more savy now.

You need only look at pathetic numbers that have registered for the household tax.
This gov wont last the year.

SupaNova

andrew wrote: »

I'm not sure I understand what you mean. As in, I understand that interest rates are 'artificially' low, but if still no investment or loans occur at this low interest rate, then none would occur if the interest rate was higher. So the relationship is broken because of banks don't want to lend and companies don't want to borrow in spite of low interest rates which have been 'meddled with'.

Yes there would be even less borrowing if interest rates were higher, but the lack of lending and reducing of debt levels is part of the return to normality and the process of eventually fixing the relationship between savings and investment.

southsiderosie

Permabear wrote: »

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Your response speaks exactly to my point about neo-liberals (and yes I mean in the academic post 60s sense) not paying enough attention to culture: do you think that government is the reason why consumerism thrives in the US? Government is not the sole (or I would argue, even the foremost) institution in American society that influences individual behavior.

The government also encourages Americans to eat less and exercise more, and we've seen how that has worked out.

Permabear wrote: »

Again, it depends very much on the country and its circumstances. As I've said above, higher incomes are sometimes correlated with higher savings rates, but in the case of Ireland over the past few years, savings rates have gone up markedly as disposable incomes have declined — macroeconomic uncertainty producing a "hoarding" instinct. Factors such as economic growth rates, interest rates, tax rates, demographic composition, welfare supports, dependency ratios, mandatory saving schemes, fiscal policy, tax incentives, and the trade balance can all play roles in influencing the savings rate.

Yes I understand that. There are a host of factors that can play into savings rates (and rates of consumption). But your analyses consistently bring this back to Keynesianism - and a rather warped view of Keynesianism at that.

Permabear wrote: »

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And you seem incapable of acknowledging broader structural changes in the economy, or the role of culture independent of the government, or a host of other factors which do not support a neo-liberal analysis.

Permabear wrote: »

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Well, your posting history speaks for itself.

Permabear wrote: »

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Yes. But most of these works when they mentioned society did so in the abstract sense, whereas there are clearly concrete and weighty historical and cultural factors which are place specific that affect political economy.

There is not one kind of capitalism - hence the enormous literature on Varieties of capitalism. This is what makes all of the handwringing over 'Keynesian" policies so aggravating: there is more that one way to skin a cat, and run an economy. Keynesian policy has just become a byword for "capitalist system that neo-liberals don't like", and that approach glosses over the fact that there is tremendous variance within these sets of countries, not all of which are in crisis right now.

Farmer Pudsey

The government need to cop themselves on any gobshi## knows that it is confidence is the problem. We are told that there is 80 billion in saving in this country and 80 billion in debt. Anybody with commonsence would know that the people who have the 80 billion in savings are different from the people with the 80 billion in debt and that is why they have it and they are not going to spend it so that politicians and high paid civil servants (judges+ consultants) and protected industrys ( doctors+solicitors) can keep on having a good time

This is not a high brow discussion in BULL it is reality the banks want people who cannot pay there mortages to stop sending there kids to private schools,(o my god) to shop in ALDI (god forbid)to reduce there health cover (this is totally off the wall) maybe not to change their Range Rover or BMW this year ( we're a Stalinist State).

Poor old Ronan might have to give up his private jet ( what will Rosanna do for a spin abroad). There is a problem with debt in this country but thinking that we can get savers to spend when the big guy still want to live the champagne livestyle somebody would want to smell the coffee.

Permabear

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Permabear

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Just forget about Keynesian economics - we cant properly implement it now that we no longer have control of the currency we use.

All we can do is increase taxation during a boom and decrease it during a recession.
And we cant even do that with the deficit.

The only positive growth option now is to slim down spending and do it following the formula for an expansionary fiscal contraction. Its possible and has been done before - Ireland is one of the countries that implemented this strategy successfully in the past.

Peanut

Permabear wrote: »

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They might argue that, but in such a case, it wouldn't appear to be an argument based on Keynesianism then, at least not in the classical sense.

At least that's how some would see it, such as expressed in this CNN Money article, "How Obama got Keynes wrong"

He (Keynes) clearly did not advocate long-term spending in excess of revenues, since that causes structural deficits.

It seems fairly obvious that the problem we had (and Greece etc.) was not so much due to policy but populism. Any economic system will fail under the same circumstances where political agendas are allowed to take so much precedence over the longer-term wellbeing of the state.

southsiderosie

Permabear wrote: »

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Because you are only describing what is happening during a crisis, which is only half of the story. But you can't damn one side without addressing the other. One of the core tenets of Keynesianism is counter-cyclical spending. But what most countries that are in trouble engaged in was constant, out of control spending. That is why it is so frustrating to see the term 'Keynesian policies' bandied about to describe Ireland and the US - better examples would be Germany and Chile. The NPR quote you cites highlights this: Keynes believed that government spending was meant to be temporary until the economy got back on track. As someone else has pointed out, this is exactly what Germany did - and not only that, but while the Club Med countries were spending away, they enacted painful reforms to reduce government spending on welfare (Hartz IV). Germany has also engaged in mass wage restraint, largely by cooperation with trade unions - this in sharp contrast to benchmarking, the CPA and other nonsense policies that the Irish government has trotted out over the last decade.

Permabear wrote: »

Again, these are just unwarranted and, at this point, faintly ridiculous attacks. I've frequently acknowledged structural issues when talking about economic matters — and I often write about cultural issues as well. So I'll ask you to retract your statement that I'm "incapable of acknowledging" such factors.

Some examples please? I'm taking these accusations about my "posting history" quite seriously since they come from someone who is now a moderator of this forum.

I'm not using "Keynesian policy" as a byword for anything other than Keynesian policy — and I believe that I'm familiar enough with economic history to know what Keynesian policy actually is.

The thread asks "why is the government so annoyed by people saving money' when they should be out priming the pump so to speak. Your reply was because of the legacy of Keynes. But Keynes didn't advocate spending in both bad times and in the 'boomiest' of the boom times. I don't disagree that pushing spending in bad times is Keynesian, but I think linking that to the Irish situation is inaccurate - the government has been encouraging people to spend for the last decade, regardless of the economic situation. I am not sure what you call this, but it is certainly not Keynesianism!

The words "Keynesian', 'statist', 'socialist' - and for that matter, 'libertarian' - are generally bandied about in this forum with little consideration as to what they actually mean, or how the use of these terms has been warped to suit particular political agendas. Case in point:

Permabear wrote: »

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OK, so is the government socialist? Keynesian? Or, perhaps more plausibly, grabbing at straws and trying to do anything to make it look like they are addressing the crisis? Ireland, perhaps more than any other Western democracy, is profoundly non-ideological when it comes to government policies - governments in power simply do whatever then need to do to maintain support. Hence Bertie could say "we are all socialists now" even as he presided over one of the most unregulated financial sectors in Europe.

Technically, every OECD country is a capitalist country - but there are, as I mentioned 'varieties of capitalism'. Yet, based on the comments that have consistently appeared in this forum, if you are wielding a neo-liberal hammer, everything looks like a nail (statist/socialist/Keynesian); the variance between countries which provide social safety nets, are market-oriented to a significant degree, and where services like education and health care are heavily, if not fully driven by government spending and policy, is significant. For the record, I find the "gaaaaaahhhh! LIBERTARIANS!" type comments to be just as aggravating as the "gaaaah KEYNESIANIANS!" type comments, and I think I have been pretty consistent on both of these points.

Permabear

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foxyboxer

The golden rule is to save a minimum 10% of what you earn.
(you should save more if you can)

The theory goes that you then 'live' off the remaining 90%.

The problem is that people don't save and 'live' off 110% of what they earn.
(living beyond your means)

If that is the case and you are in debt, then it would be lovely to see a policy which states that if you are in debt, then creditors can only go after 30% of a debtors finances.

So for example if Johnny is on the dole and he owes money then he can only pay 30% for every dole payment he receives to servide his debt.

Creditors would be obliged to have Johnny sell off any material goods and have it come off the principal, but they cannot touch 70% of his income.

If he has multiple creditors then the 30% is divided up amongst them.

Johnny simply has to learn to live off the 70%. Hey life sucks.

This 30% rule could also apply on an sovereign scale and the 10% saving rule but that's just fantasy.

Remember: Money is a simple concept made complex by idiots.