James Kroeger argues that America saves too much

[Linette]

From his blog entry today:

"Most Americans are not aware of the fact that America actually saves too much money. In daring to make such a statement I am knowingly inviting the ridicule of the vast majority of professional economists in North America, including a majority of those economists who think of themselves as Democrats, or Progressives. The very last thing they are going to want to do is to listen to me, but I am going to have to try, anyway."

"Every single economist who has issured a warning to the public recently that America is not saving enough has pointed to the measured decline in the National Savings Rate (NSR) over the past few decades. Current measurements of America’s savings “rate” are extremely low compared to historical data and much, much lower than the savings rates of other countries. This measurement, many economists insist, is all we need to know in order to embrace the conclusion that the country would be much, much better off if more money was saved by Americans. I regret to have to inform them that they are mistaken."

"One of the first grand economic generalizations that economists teach their principles students is the easily verifiable fact that all income is derived from the spending of others. If you are earning income, it is only because some others had decided to spend their money on something that you helped to produce. The only reason why there is ever any unemployment in an economy is because some people who have money in their possession that they could spend, are choosing to save it, instead. Except in a hyperinflationary economy, when aggregate savings increases—all else equal—there is going to be a decline in employment. That is not acceptable."

"The unemployment rate is the one indicator we have that can tell us at any time whether or not we Americans are saving enough money. It also tells us when we have achieved an optimal level of savings in our economy. When unemployment reaches zero percent, that’s when we can finally say that Americans need to save more. It is only when there are more jobs available than there are people to fill them that we can say that more money could be saved without the risk of eliminating jobs."

Do you agree?

[ThoughtCriminal]

1. I'm not an economist

but unless I'm stuffing the money into my mattress, my savings are being loaned others to do things like buy houses, automobiles and factories.

[Linette]

2. Not all savings...

More from Kroeger on savings:


"Empirical evidence reveals that:

"1) 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.* 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, <i>not savings.</i>"

"2) Between 1998 & 2001 (years that included cyclically high levels of business investment) the combined borrowing of non-financial corporations and all non-corporate businesses varied between 20-34% of total borrowing nationwide. During the same period, the household sector of the economy accounted for 20-30% of total borrowing.**

"These statistics tell us that only a fraction of total savings is directed, ultimately, to the noble purpose of improving economic efficiency. Much of the money that is saved is ultimately spent on efficiency-neutral consumption (e.g., credit card and installment purchases). If firms find that interest rates are too high, is it necessarily because there is a shortage of savings, or is it perhaps because lending institutions are quite happy to starve the supply-side of the economy if they can get higher yields by lending to people for their consumption desires?"

"3) Savings are not the only source of loanable funds. The ultimate determinant of the supply of loanable funds in the U.S. economy is the Federal Open Market Committee of the Federal Reserve System. Whenever The Fed buys securities in the open market, it pays for them with money that it creates out of thin air with a keystroke. It does not draw the money from some reserve account that is limited in size.*** It is “new money” that did not exist prior to the keystroke that created it. With any of its purchases of securities, The Fed provides loanable funds to banks that were not saved by any saver..."


Yes, ThoughtCriminal, some of your savings ends up being used to buy houses, automobiles, and factories, but not all of it. It's the part that isn't loaned that causes a problem. As Kroeger points out, when too much saving is going on, it costs people jobs.

[muriel_volestrangler]

6. But doesn't this show that savings are indeed driving further income?

"Much of the money that is saved is ultimately spent on efficiency-neutral consumption (e.g., credit card and installment purchases)."

In other words, the savers don't spend the money - but they lend it to someone else, who does. Those people will have to pay back more, in the future, to the savers.

I think the problem is that too much of that spending is on imported goods, which means that, overall, America has to sell assets, either abroad or in the USA, to pay for the imports; or borrow money from abroad.

[Kenneth ken]

3. sounds like economics for dummies

the main reason I save money is so that when I decide to spend it at some point in the future, I don't have to borrow, at cost plus interest, to pay for the purchase.

If a person follows Kroeger's advice and doesn't save, then when they need to purchase, say a car, they don't have the cash to pay for it, and so rather than paying $25,000 for it, they take out a loan for $25,000 over x months with interest on the unpaid debt, and end up paying $30,000+ for the car.

[geckosfeet]

4. Consder yourself heavilly ridiculed by a non-economist Kroeger.

What an assinine thing to say much less put into print.

Pardon my outburst,, but what he MUST have meant to say was that "The only reason why there is ever any unemployment in an economy is because of concentrations of corprate and individual wealth that allow manipulation of the labor market and the fair market trade value of skills and services."

Eeez like,,,, " I got de money mahn,,,, I pay u dis much fo dat. Udderwize I keep da money. "

Hey Kroeger,,,, sit on a red hot pitch fork.

[Linette]

5. Sorry for the misunderstanding

I must assume that you're not familiar with the rest of Kroeger's work.

He's not saying everyone in America is saving too much.

He's saying that the rich are saving too much because their taxes were cut too much by the Republicans.

There's a difference between saying "America saves too much" and "Americans save too much."

When the rich are doing all of the saving and no one else has enough money to save, that's not right.

[geckosfeet]

7. You are correct. I am not familiar with his work. Nor do I have any

background to speak of in economics.

But I do know that its getting pretty thin here on the ground here. Its hard to save cause there is nothing to save at the end of the day. Real wages and compensation shrink as fuel prices/profits soar. There is more work to do and less time to do it and property and local taxes spiral out of control.

I suspect that at least part of the reason is that the large concentrations of corporate and individual wealth have been handed welfare checks by the theocon regime. Tax cuts are certainly part of it but so is plain old greed.

[sadiesworld]

8. The author probably should have been clearer from the outset.

Sorry if you're getting a bit battered due to a misunderstanding.

Welcome to DU :hi:

[Linette]

9. Agree

Thanks for the greeting, Sadie :hi:

[WhiteTara]

18. Welcome to DU

Linette. Keep on posting.
:hi:

when I read the title, I thought he was talking about rubber bands and tinfoil hehehe

edit for more words.

[enki23]

10. what a fucking idiot

.

[K-W]

11. This is religion, not economics.

He is taking it as an article of faith that if everyone spent all thier money the economy would run like some sort of perpetual motion machine.

Its nonsense.

He is asking people to sacrifice thier future to the gods of perfect capitalism.

[Linette]

12. Not even close...

Try reading again.

[K-W]

13. The part I read was nonsense.

Spending is NOT the source of all income.
Unemployment is NOT cauused by savings.

If everyone spent there would NOT be 100% unemployment.

Why would I care to hear more of this theory?

[Linette]

14. Oh really?

Please be kind enough to explain why:

"Spending is NOT the source of all income. Unemployment is NOT cauused by savings. If everyone spent there would NOT be 100% unemployment."

Why keep this knowledge to yourself? Could you explain it so that I can understand it?

[idlisambar]

15. There are a number of ways to tackle this

One is to look at cross-country comparisons. Modern Japan in comparison to the U.S. has famously had a very high savings rate and just as famously also has very low levels of unemployment.

Two, the Great Depression was the last period in U.S. history that was marked by a negative savings rate, and this was hardly a period of no unemployment.

Generally speaking the empirical case for these propositions is wanting.

Three, from first principles the link between savings and unemployment is weak at best. A hypothetical society might have a 25% unemployment rate of people that earn no income, while the remaining 75% spend all of their income (0% savings), exchanging money with each other.

[K-W]

17. The burden of proof lies on you to prove these assertations

if you believe them.

Spending isnt a source of anything, it is an exchange. No value is created. It is just one componant, not a source.

The author is massively oversimplyfing the economy into this model where spending has a special role. Many factors go into unemployment, and the idea that no savings would create 100% employment is simply a matter of faith.

It is a belief, there is no evidence anywhere that supports that.

[JAK1941]

16. Who is James Kroeger?

He might be related to me.

;)

[Linette]

19. Re: "Who is James Kroeger?"

James Kroeger