Save or Spend: What's Better for the Economy?

[hegemony]

http://www.smartmoney.com/investing/econom...or-the-economy/

[hurricanesfans27]

Saving is much more fun.

[caffeinekid]

How about neither save nor spend? How many people are simply making enough to get by...if even that? How many more than last year...or last month?

 

Frankly, a consumer-driven economy is only as valuable as the paper being printed to create such an illusion. The paper failed last year and they printed even more. I would say that this isn't going to last much longer, but as long as people still think that that boiled frog is still alive.....

[Kevin20]

http://www.smartmoney.com/investing/econom...or-the-economy/

 

Well there's a balance between saving and spending and no one knows what it is optimal. 20 years ago Japan had a huge savings rate, everyone talked about how the Japanese economy was destined to reign supreme ... but in fact Japan has done nothing but decline ever since, their vaunted savings rate has done nothing but decay as people retire and as unemployment increased, and today the U.S. savings rate is twice as high as Japan's and no one talks about that anymore.

 

People have this conversation and don't understand what the point of saving is in the first place. They just assume it's a virtue for some unstated reason, unless maybe too much of it occurs. Well, macroeconimically speaking, saving serves precisely one purpose: to supply capital for investment. Savers save, intermediaries collect that savings and convert it into capital, and business invest that capital, primarily for one purpose: to increase economic productivity, which makes us all richer in the long run because the same amount of human labor produces more goods and services so we have more stuff.

 

The only sign that we're not saving enough is if there is insufficient capital for business. I'd say a big part of our problem in recent years, if anything, is that there has been way too much capital for business, allowing people to get stupid and sloppy and too risk-taking.

 

Meanwhile it is always and forever salamanderic to complain the economy is too dependent on consumer spending, Hello, that is the entire point of the economy. That is the entire point of all economic activity: to satisfy the needs of consumers. Everything else only supports that. That is what an economy is: it's how a society organizes its resources to satisfy the needs of consumers. GDP = C + I + G + (X - M). I is business investment, which only occurs so that businesses can make products to satisfy the needs of consumers, or make products for another company downstream that makes products for consumers. G is government spending ... do we want twice as much of that? Is it virtuous to be dependent on government spending instead of the real economy? (X-M) refers to net exports. What's the point of devoting all our labor just to make goods for consumers in OTHER countries to benefit from instead of ourselves? That's still being dependent on consumer spending anyway, just some other country's consumers.

 

Good grief!

[radi8]

Well there's a balance between saving and spending and no one knows what it is optimal.

 

In my overly simplistic point of view, to the economy at large savings acts in a fashion similar to a shock absorber on your car. Not enough and a minor bump will cause serious damage, but more than what's necessary for the largest bump is wasted. There is no benefit to the economy at large for consumers to be sitting on excessively large piles of money, it's better used actually doing something.

The more consumers divert to rainy-day savings after a certain point, the more likely it is that rainy day will actually come. Nobody gets paid to build/sell/repair products you aren't buying. Those people in turn may not buy whatever it is that keeps you employed.

[GEORGE]

PAY OFF CURRENT DEBT

[Uncle Leo]

How about neither save nor spend? How many people are simply making enough to get by...if even that? How many more than last year...or last month?

 

Frankly, a consumer-driven economy is only as valuable as the paper being printed to create such an illusion. The paper failed last year and they printed even more. I would say that this isn't going to last much longer, but as long as people still think that that boiled frog is still alive.....

I see the same thing about our increasingly service-based economy. I think we're eventually going to regret losing so many manufacturing jobs.

[Uncle Leo]

Well there's a balance between saving and spending and no one knows what it is optimal.

In my overly simplistic point of view, to the economy at large savings acts in a fashion similar to a shock absorber on your car. Not enough and a minor bump will cause serious damage, but more than what's necessary for the largest bump is wasted. There is no benefit to the economy at large for consumers to be sitting on excessively large piles of money, it's better used actually doing something.

The more consumers divert to rainy-day savings after a certain point, the more likely it is that rainy day will actually come. Nobody gets paid to build/sell/repair products you aren't buying. Those people in turn may not buy whatever it is that keeps you employed.

I think there's alot to be said for the "overly simplistic view" when it comes to finances.

[TroyP]

Well there's a balance between saving and spending and no one knows what it is optimal.

In my overly simplistic point of view, to the economy at large savings acts in a fashion similar to a shock absorber on your car. Not enough and a minor bump will cause serious damage, but more than what's necessary for the largest bump is wasted. There is no benefit to the economy at large for consumers to be sitting on excessively large piles of money, it's better used actually doing something.

The more consumers divert to rainy-day savings after a certain point, the more likely it is that rainy day will actually come. Nobody gets paid to build/sell/repair products you aren't buying. Those people in turn may not buy whatever it is that keeps you employed.

I think there's alot to be said for the "overly simplistic view" when it comes to finances.

 

Taking the overly simplistic view often leads to unintended consequences... Congress used the overly simplistic view when they told credit card companies they can't ratejack consumers anymore. Credit card companies responded by ratejacking everyone so they wouldn't have to later.

[Uncle Leo]

Well there's a balance between saving and spending and no one knows what it is optimal.

In my overly simplistic point of view, to the economy at large savings acts in a fashion similar to a shock absorber on your car. Not enough and a minor bump will cause serious damage, but more than what's necessary for the largest bump is wasted. There is no benefit to the economy at large for consumers to be sitting on excessively large piles of money, it's better used actually doing something.

The more consumers divert to rainy-day savings after a certain point, the more likely it is that rainy day will actually come. Nobody gets paid to build/sell/repair products you aren't buying. Those people in turn may not buy whatever it is that keeps you employed.

I think there's alot to be said for the "overly simplistic view" when it comes to finances.

Taking the overly simplistic view often leads to unintended consequences... Congress used the overly simplistic view when they told credit card companies they can't ratejack consumers anymore. Credit card companies responded by ratejacking everyone so they wouldn't have to later.

Being cute and complex in your approach can also lead to unintended consequences. What's your point?

 

FWIW: That ratejack rule... on existing balances, btw, not all... will be a benefit for everybody in the long-term. Don't be unduly influenced by the short-term fall-out.

[LBCS]

Well there's a balance between saving and spending and no one knows what it is optimal.

In my overly simplistic point of view, to the economy at large savings acts in a fashion similar to a shock absorber on your car. Not enough and a minor bump will cause serious damage, but more than what's necessary for the largest bump is wasted. There is no benefit to the economy at large for consumers to be sitting on excessively large piles of money, it's better used actually doing something.

The more consumers divert to rainy-day savings after a certain point, the more likely it is that rainy day will actually come. Nobody gets paid to build/sell/repair products you aren't buying. Those people in turn may not buy whatever it is that keeps you employed.

I think there's alot to be said for the "overly simplistic view" when it comes to finances.

Taking the overly simplistic view often leads to unintended consequences... Congress used the overly simplistic view when they told credit card companies they can't ratejack consumers anymore. Credit card companies responded by ratejacking everyone so they wouldn't have to later.

Being cute and complex in your approach can also lead to unintended consequences. What's your point?

 

FWIW: That ratejack rule... on existing balances, btw, not all... will be a benefit for everybody in the long-term. Don't be unduly influenced by the short-term fall-out.

 

 

Exactly. As I have said before, the practice of raising rates on existing balances is quite underhanded and mean spirited, especially when balance chasing is done in tandem. I am all for rate jacking and CLD's (the bank should be allowed to price according to risk - but for future disbursements only) but raising rates on existing balances creates a perverse incentive for sloppy initial underwriting.