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"But because everyone worries and saves a little more, and invests and spends a little less, the economy gets stuck in a downturn. Recessions are an outbreak of

"But because everyone worries and saves a little more, and invests and spends a little less, the economy gets stuck in a downturn. Recessions are an outbreak of collective madness." Or maybe "Recessions are an outbreak of collective sanity."

Economics4u 9y ago
Perhaps you can explain how everyone can save in aggregate? Where do people get this idea that "saving" is somehow virtuous?
- gbacon 9y ago
  The notion that savers hoard their money in mattresses is a caricature, not serious economics.
- taneq 9y ago
  > Where do people get this idea that "saving" is somehow virtuous? Savings are a form of safety net, since individuals don't have access to unlimited funds or unlimited credit. The higher the perceived risk of financial trouble (loss of job, a surge in cost of living, etc.) the more savings you need in order to mitigate that risk. Do you really need this explained to you?
  - grasshopperpurp 9y ago
    Good post. Americans have to build their own safety nets, because the societal safety nets are so poor. If you're standing on the edge of a tall building, you're probably not going to practice gymnastics - unless you mean to post it on Instagram (x_x).
    - Bromskloss 9y ago
      Presumably – hopefully – people save anyway to avoid plunging into said safety net. It might be unpleasant, both the knowledge of having not been able to provide for yourself, and the standard of living that you might be limited to if you're deep in the net.
- srgseg 9y ago
  The situation is confusing, because of the difference between physical and financial assets. It's possible for everyone to simultaneously save physical assets, but mathematically impossible for everyone to simultaneously save financial assets. Imagine two people alone on a desert island. Both can save up firewood (a physical asset) during their entire working lives. They can then both retire and enjoy their savings (firewood) during their retirement. So it is possible for everyone to simultaneously save physical assets. However, financial assets are reciprocal. One person's financial asset is another person's liability. That liability can be thought of as an 'obligation to perform'. In the desert island example, they both cannot save up obligations from each other and then retire, because there would be no one working to perform the obligations. If everyone has 'saved' as many obligations owed to them as they've accumulated obligations they owe to others, then that's the equivalent of no one having saved at all. So it's mathematically impossible for everyone to accumulate savings in the form of financial assets. Either everyone has net zero savings, or some people have financial savings and other people have financial debt. Therefore the healthy approach is for people to work while they can to accumulate financial obligations owed to them by the next generation, so that when they retire there is someone around to fulfil those obligations. Therefore everyone saving prior to retirement is certainly virtuous, because it means you've done work for others so that when you retire, they're not just forced to provide for you for free. It would have been a fair deal where you did something for others and now they're doing something for you. So just because not everyone can save, that doesn't mean it's not virtuous to save during your working life.
- eurticket 9y ago
  Well perhaps if you associate planning ahead for the well being of people that depend on you virtuous, then...

Economics4u 9y ago

Perhaps you can explain how everyone can save in aggregate? Where do people get this idea that "saving" is somehow virtuous?

gbacon 9y ago
The notion that savers hoard their money in mattresses is a caricature, not serious economics.
taneq 9y ago
> Where do people get this idea that "saving" is somehow virtuous? Savings are a form of safety net, since individuals don't have access to unlimited funds or unlimited credit. The higher the perceived risk of financial trouble (loss of job, a surge in cost of living, etc.) the more savings you need in order to mitigate that risk. Do you really need this explained to you?
- grasshopperpurp 9y ago
  Good post. Americans have to build their own safety nets, because the societal safety nets are so poor. If you're standing on the edge of a tall building, you're probably not going to practice gymnastics - unless you mean to post it on Instagram (x_x).
  - Bromskloss 9y ago
    Presumably – hopefully – people save anyway to avoid plunging into said safety net. It might be unpleasant, both the knowledge of having not been able to provide for yourself, and the standard of living that you might be limited to if you're deep in the net.
srgseg 9y ago
The situation is confusing, because of the difference between physical and financial assets. It's possible for everyone to simultaneously save physical assets, but mathematically impossible for everyone to simultaneously save financial assets. Imagine two people alone on a desert island. Both can save up firewood (a physical asset) during their entire working lives. They can then both retire and enjoy their savings (firewood) during their retirement. So it is possible for everyone to simultaneously save physical assets. However, financial assets are reciprocal. One person's financial asset is another person's liability. That liability can be thought of as an 'obligation to perform'. In the desert island example, they both cannot save up obligations from each other and then retire, because there would be no one working to perform the obligations. If everyone has 'saved' as many obligations owed to them as they've accumulated obligations they owe to others, then that's the equivalent of no one having saved at all. So it's mathematically impossible for everyone to accumulate savings in the form of financial assets. Either everyone has net zero savings, or some people have financial savings and other people have financial debt. Therefore the healthy approach is for people to work while they can to accumulate financial obligations owed to them by the next generation, so that when they retire there is someone around to fulfil those obligations. Therefore everyone saving prior to retirement is certainly virtuous, because it means you've done work for others so that when you retire, they're not just forced to provide for you for free. It would have been a fair deal where you did something for others and now they're doing something for you. So just because not everyone can save, that doesn't mean it's not virtuous to save during your working life.
eurticket 9y ago
Well perhaps if you associate planning ahead for the well being of people that depend on you virtuous, then...