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An increase in the savings rate has significantly negative effects on GDP growth in the short-term. So, if the US suddenly lived within its means, it would caus
by mediaman 16y ago
An increase in the savings rate has significantly negative effects on GDP growth in the short-term. So, if the US suddenly lived within its means, it would cause/worsen a short-term depression.
In the long-run, a bigger capital base can create more technology and/or capital investment, which improves productivity, which improves standards of living.
- CWuestefeld 16y agoI agree with your conclusion, but part of your logic is faulty. You seem to be assuming that all savings takes the form of holding debt from others, e.g., bonds. But that's only one possibility. You can also save by owning equity in others, e.g., stocks. However, I don't want somebody else to own equity in my house, rather me having a normal mortgage. At the very least, such a change would cause all kinds of liquidity problems, and would certainly cause the significant negative effects you predict.