What's the point in saving anymore?

bluewolf wrote: »

Standard keynesian economics anyway.

I am reading a couple of interesting articles explaining that while it might sound true for a very simple economy, the fact that we are at more complex levels of production, where there are different levels of processes involved, punches a hole in that idea. It also means there can be no accumulation of capital if it's all on such short term spending and never saving.
There is fundamentally everything wrong with Keynes’ proposition when we place ourselves in a complex economy. Keynes’ fallacious argument roots from the basic lack of understanding of the `structure of production’ which is very complex in a division-of-labor society. Any product we use in today’s extremely complex economy is provided after complex levels of processes which happen at different points of time, and at different pace. This is called the economy’s `inter-temporal
structure of production’. So there is essentially a time lag involved in the production process. This basic understanding can travel us long forward in understanding the economy and refuting arguments of economists like Keynes.
http://www.reasonforliberty.com/economics/are-savings-bad-for-the-economy.html

Another article along the same lines, an interesting read:
http://mises.org/daily/710

The trouble with those articles (and all this is a comment on the articles, not attacking you), is that savings do not save real productive assets for the future, they defer production of real assets into the future; so this means production must slow down in the present, for savings to increase.

Savings can not signal industry to prepare for future production, because how would industry know what consumers will want to buy? (i.e. how would industry know what capital goods to acquire, to meet future consumer demand?)

Rates on loans aught to not be linked to the level of savings either, they should be set to stop excess credit causing bubbles, which will not directly correlate with savings.


Also, a lot of the emphasis on capital goods there is either for ramping up production or for improving the efficiency of existing production; this fails on a few points:
1: You want the efficiency of production to be at a maximum anyway, so a decrease in demand and increase in savings aren't going to trigger big investments in efficiency
2: Nobody knows what goods future savings might be preparing for, so there is no way for any particular industry to know it needs to increase productive capability for the future
3: The reduction in demand in the present means there is already excess capacity for production to meet future demands; there would be nothing to say that demand will be even higher for a particular product in the future, so there is no way to tell if investments in increased productivity is warranted.


In particular, this bit of the second article is all wrong:

Once a producer has exchanged his goods for money, he has in fact begun saving. When a baker sells his bread for $1 to a shoemaker, he has supplied the shoemaker with his saved ( i.e., unconsumed) bread. The supplied bread will sustain the shoemaker and allow him to continue making shoes. Note that money received by the baker is fully supported by his production. Being the medium of exchange, money will enable the baker to secure goods and services some time in the future, whenever he requires them.

Money is not like physical bread, because you can't save real assets/production by saving money, you can only spur more production in the future with the money.
It is also not necessarily true that saving allows securing of goods in the future, at the same price, because if everyone saves today, and then all at once in the future try to spend their savings on a particular product, there will be too much money chasing that product, causing its price to inflate; that is a good example of how money does not save actual real production, and is not comparable to saving real commodities.


Also, another bit which is very wrong; so wrong in fact, that it borders on being malicious i.e. deliberately false, so I'd be very skeptical of that source of information in the future.
I'm breaking it into several quotes to tackle it one bit at a time, because it is subtle in how it obfuscates and tries to deceive the reader:

It doesn’t follow, however, that one can lift economic growth and effective real aggregate spending via the printing presses.

This bit is asserted, and following arguments trying to back it are fallacious.

When money is printed—that is, created "out of thin air" by the central bank—it sets in motion an exchange of nothing for money and then money for something.

This states that nothing is exchanged for money, and then money exchanged for something, but the below quote goes beyond this and states 'printed money = nothing'; very big fallacious step.

Money is never 'nothing', money is societies debt to the person/group holding it; if government prints money, it can be (and is) directly used to fund production, either through paying for labour (public services), or buying private goods, such as e.g. buying stockpiled stone from a quarry.

An exchange of nothing for something amounts to consumption that is not supported by production.

'Nothing' here is not nothing, it is money; this goes beyond the quote before this, and makes the false equivalence that 'printed money = nothing', which is a fallacious and deceptive step.

Exchanging money for something, does not amount to consumption that is not supported by production; money allows production to happen in the first place, and is used to fund future production, unless people want to trade by barter.
Real wealth is created by actual goods in the economy, money is just the lubricant which eases the exchange of real goods.

Because every activity has to be funded, it follows that an increase in consumption that is not supported by production must divert funding from wealth-generating activities.

This statement is built upon the false premises of the above quotes, the term "wealth-generating activities" is also deliberately obfuscatory; a good example of nonsense used to obfuscate/confuse a reader, to try and make them give up parsing it, and just accept the conclusion.

It's basically saying, when you unparse the garbage, that an increase in printed money in the economy, diverts funds from "wealth-generating activities", without even attempting to explain how, or precisely what that's even supposed to mean.

This, in turn, diminishes the flow of real savings to the producers of wealth, which weakens the flow of production, which sets in motion an economic recession.

The term "wealth producers" is also deliberately obfuscatory, there is no explanation of how the "flow of real savings" is diminished (it is only asserted, nothing about savings has been said so far), and that is used as a false premise to say the flow of production is weakened (again without explaining how the savings link is supposed to cause that), causing a recession.

That last point, when you unparse the whole argument of the above quotes, means the author is equating printing money with economic recessions.


It's worth repeating: If the source of that information, the mises.org website, puts out such false information without correcting it, then can that be a credible source of information?
That affects the credibility of that website as a whole, and warrants extremely high skepticism of their writing; if false and deliberately deceptive information like that is read regularly from a website (even if it's just in bits and pieces), and goes unchallenged, it will sink in over time for the reader, through repetition, which poisons knowledge with falsehoods.

Whenever an article is throwing large amounts of obfuscated terms/words at you, and is trying to confuse the reader like that, that's a huge warning sign that the author is trying to deceive.


Another problem with the second article, is it says capital comes into existence by saving, but this is not true with the public sector because that is directly funded by government spending.

In the private sector, saying capital comes into existence by saving, is only true in that money usually goes through banks before being reinvested (it doesn't even have to do that), but then banks are able to lend out money in excess of deposits/savings, so what they can lend out is not restricted one-on-one with savings.


A good way to illustrate the difference (which is also a good thinking exercise for dispelling a lot of other economic myths): If you replaced private banks with a public bank, loans from that would not be savings-constrained in any way, they would only be constrained by wanting to avoid excess credit (due to bubbles/instability) and inflation, since government is the fiat issuer of money and can issue as much as it wants within those constraints.


I spent a lot more time on that second article than I thought I would (and there are a lot more areas where it has issues, which I haven't addressed), so excuse the size of the post.

SupaNova2 wrote: »

But no-one has ever argued the extreme, but that some saving is desirable. We could easily shoot down the other extreme . The other extreme is saving is a drain, the lower people's propensity to save and the higher the multiplier the better. You have a real life example of what happens when people's propensity to save goes to zero, a hyperinflation, and the result, economic devastation.

Hyperinflation caused by saving?

Rojomcdojo wrote: »

If you and they are over-indebted, then why are you saving ahead of paying off debts?

Some people have manageable debts but are saving any surplus they have because they are aware that their debts may become unmanageable the moment they lose their job, their health declines etc. Saving is better strategy to cushion yourself than paying the debt off early as you may not know what hits you.