The Economy: America Saves Too Much

[Linette]

Another brilliant contrarian article by James Kroeger.

Some excerpts:

In my previous blog entry, I suggested at one point that the solution to the problem of unemployment in America is for the government to tax savings and spend that tax revenue on increased production of Public Wealth. One Democrat whom I respect, Jude Nagurney Camwell, had this to say:

At a time in this country when we are a debtor nation and so few are saving, and while credit debt runs the typical American life, I don't think it's politically responsible to tell Americans that savings are being treated punitively.

There is no doubt in my mind that Jude speaks here for many Democrats who, I’m sure, would be aghast at my suggestion that savings be taxed. These would be the Democrats---many of them economists---who have been regularly citing the decline in the nation’s Personal Savings Rate as proof that America needs to start saving more. Well folks, I’m here to tell you they’re wrong.

...

It is not, however, this flaw in the calculation of the Personal Savings Rate that tells me that America is currently saving too much. It is unemployment. Far too many Democrat economists have ignored the ultimate economic truth that ALL JOBS IN THE ECONOMY ARE DEPENDENT ON THE SPENDING OF OTHERS (consumers, firms, government). That’s where the money comes from that pays everyone’s salary: the expenditures of people or organizations. Savings have never created a single job, ever.

When there is any level of unemployment in an economy, it is because too much money is being saved. Think about this for a second. What is a recession? Officially, it is a decline in GDP. GDP is a measurement of aggregate SPENDING. Whenever a nation is having any kind of problem with unemployment, there is only one way to solve the problem, and that is by spending more. Where is the additional spending supposed to come from? Well, didn’t we just say a minute ago that any income that isn’t spent is money saved? All else equal, whenever there is a drop in aggregate savings, there will automatically, and necessarily, be an increase in spending. More spending means more jobs created.

In another article I’ve written, I pointed out that increasing the amount of income taxes that are collected from wealthy savers is something that is guaranteed to provide a economic stimulus to the economy. This is because it takes money that would otherwise have been saved (by rich people) and spends it instead. Yes, you heard it right: INCREASING taxes provides a stimulus to the economy if the citizens who are being taxed more are the nation’s biggest savers. Increasing the taxes of citizens who would have spent the money that they would be paying in taxes (the poor and working class) would do no good, because the increase in the government’s spending would be exactly matched by a decline in consumer spending.

If you're interested in this topic, you'll want to read the whole thing. It's sure to drive some people crazy.:crazy:

[savemefromdumbya]

1. Someone has to do something about the fiscal gap $51 trillion

[Why Syzygy]

2. What does this guy think

the "capital" in Capitalism stands for? duh .. 'savings'. He's off his rocker. Get some fair INCOME and PROFIT laws and then use those revenues. Not (capital) savings. Capitalism is not FORCED spending/investing. I hope no one listens to this bs.

[Taxloss]

3. This is lunacy.

It's more than contrarian, it flies in the face of reason. Although increased taxes can, in certain circumstances, benefit an economy, a savings net in cash or equity is absolutely vital to a healthy system. It smooths the troughs, and anoter thing - where exactly do banks get their venture cash? This man is an inflationary dream.

[melody]

4. Non-invested, liquid savings not made "capital"?

Maybe, abstractly.

His point, I think, is to take the savings and turn it into capital - invest it into the system and put the ball in play.

What would concern me is the shift of the powerbase away from the individual (saving their own money) and handing it over to the economy itself. Sounds dangerous.

[tularetom]

5. what a feckin dumbass

Where does he think the money to create new jobs comes from? "Investment" is saving. If I buy 100 shares of, a new issue of oh, say, Newscorp (Faux News) then Faux can hire another newsbimbo with the funds I have invested. How the fuck does this dumshit think jobs are created? Does he fucking understand capitalism?

[Linette]

8. I was right

He made you crazy, didn't he?

If you read Kroeger's article The Misunderstood Relationship Between Investment & Savings, you'll come across the following:

Between 1988 & 1997, an average of nearly 85% of the money that corporations spent on investment came from retained earnings or other internally generated funds.1

This empirical fact would seem to strongly refute the assumption that firms are desperately dependent upon borrowed money (and therefore upon savings) when they want to make investments. What is the ultimate source of the internally generated funds? It would be the expenditures of consumers and firms and government, not savings.

I think that might answer your question somewhat. If you really want to know how he justifies his arguments, you might want to read the whole thing.

BTW, why the anger, dude?

[tularetom]

10. Nah I was already crazy

I'm just having a bit of trouble differentiating between "saving", "investment" and "lending". If my kid wants to buy 30 acres to plant some peach trees and I "loan" him the money to do it I'm "saving" that money (as opposed to "spending" or "consuming"). I'm also "investing" the funds. That money will create jobs for him as well as the people he hires to prepare, plant, tend and harvest the peaches. If I then buy a peach I am a consumer, but which funds actually created the jobs. I don't know the answer to that.

BTW, I'm not angry either, I'm actually very mellow. Sorry if I came on a little strong.

[xchrom]

6. and here i struggle like crazy to put money in my money market account.

isn't this a case of digging a deper hole t get us out of the hole we're in?

it seems to me rabid consumerism is what the world is struggling with -- so more rabid consumerism is the answer?

what's interesting that he is addressing his remarks to liberals.

and i think that liberals more schooled economics than me will have interesting things to say about this proposal.

[salvorhardin]

7. I think he may be partially right but not for the reasons he thinks he is.

And only applied to the very wealthy.

[Linette]

9. I curious

What are the reasons you hint at but don't spell out?

[salvorhardin]

12. The very wealthy have a tendency to hold on to their money

It's a natural thing to do, and besides, when you get over a certain amount it becomes very hard to spend it. After all, how many yachts can you have? Trickle down theory would have that they invest their money and thus stimulate the economy by creating new jobs and new demands. It would be good if these people were to do that, and thus in that sense they are saving too much, at least from the persepective of the national economy. But I don't think that's been adequately demonstrated, neither is it guaranteed that what they do spend benefits the U.S. economy.

[K-W]

11. He's right to a small extent.

Savings arent an answer to debt, people desperately in debt cannot save.

If people in a nation of debtors start saving, it doesnt benefit the debtors at all. The people who are capable of paying off thier debts or who have no debts do so and save. The people who are unable to do so will suffer from the decreased economic activity as this article argues. He is also right that personal saving hurts the governments ability to pay off its debts.

The problem with the argument is the marketplace he is relying on. One that will respond to more spending with more jobs. While there is definately a connection, it is not a direct connection because its not always profitable to reinvest in jobs and more and more we see that with outsourcing and huge capital investments in foriegn countries that capital is not reinvested in quality US jobs. It seems to be much more likely to invest in global infrastructure, cheap foriegn labor, and cheap US labor. Likewise government spending does not go into job creation, outside of soldiers that is. Our government is corrupted at every level by corporations. Privitization is still the movement with momentum in washington and social spending is still threatned by the republican majority and even a powerful faction in the democratic party. Government spending goes right into the corporate market which takes the spent money and converts it to low paying jobs and corporate infrastructure. And here we reach the reason why so many Americans are going into desperate debt to sustain their quality of life.

The fact is that it really doesnt matter how much you save or dont save. Either way, the money isnt going to produce quality jobs. So yah, if you are working class or middle class and you can save, you probably should, because you dont know when it will be your job that dissappears.

[Linette]

13. Quality jobs

Either way, the money isnt going to produce quality jobs.

KW-What do you make of Kroeger's arguments in this article on his website? He says if the government spends enough on infrastructure, wages for the working poor and middleclass will be driven up by market forces. Doesn't that solve the problem of quality jobs?

[Jim__]

15. I think your argument makes certain assumptions.

I'm not trying to answer for K-W; but, I had some of the same thoughts he made in his post.

One of the ways Keynes suggested we work out of the 30s depression was through government creation of jobs. But, the assumption here is that this leads to increased spending which then triggers domestic investment, more jobs, and we're off.

The problem now is that domestic consumption triggers foreign investment. We need to actually be making something in order to get the economy re-started. Right now, we're spending our wealth buying things that are made overseas. The government can't just keep taxing services and then using that money to rebuild infrastructire. The economy needs to be doing something other than building roads and selling hamburgers.

The loss of manufacturing in the US is a slow motion catastrophe. Unfortunately, our government is being run by a buch of free market ideologues who believe the market can't hurt us.

Wait a few years.

[salin]

14. one problem in the snippets...

when little of the manufacturing is done domestically - increased spending does not fuel jobs in the domestic economy on the scale that it did in the past, which made the cycle referred to work.