3 ms·

> Much of the money isn't going to other investments. It goes to savings. Savings and investments are synonyms in this context. See, eg, the savings identity (

by Lazare 7y ago

> Much of the money isn't going to other investments. It goes to savings. Savings and investments are synonyms in this context. See, eg, the savings identity (https://en.wikipedia.org/wiki/Saving_identity https://en.wikipedia.org/wiki/Saving_identity). When Joe Millionaire "saves" some money, he does so by investing it. That's what the word means. > The problem with giving money to the wealthy is that it doesn't go to startups, it leaves the economy and increases a number on someone's terminal. That's not how money or investment works. > The best way to spur economic growth is to give money to people who will spend it quickly Very possibly, but we're discussing who will invest it, not spend it, and as you note, the rich invest more of their income.

guelo 7y ago
Supply and demand balance out. The wheel spins slower if the money flows so disproportionately to the supply side that it lowers demand.
skybrian 7y ago
Savings being equal to investment isn't a material fact, it's an assumption built into some macroeconomic models. In order for savings to turn into an asset that increases production capacity (which is what we hope it's for), someone has to spend the money on building a new asset (or improving an existing one). In particular, asset inflation (price of land or stock going up) doesn't increase productive capacity in any material sense. And, that's what's worrying. How do we measure increase in productive capacity without assuming savings = investment? Also, the consumer price index doesn't measure inflation of assets owned by businesses. Are we assuming the market is efficient at pricing investments when it's actually just inflating? It seems like this is something economists are likely to worry about. Is there a literature on this?
- js8 7y ago
  > Savings being equal to investment isn't a material fact, it's an assumption built into some macroeconomic models. In order for savings to turn into an asset that increases production capacity (which is what we hope it's for), someone has to spend the money on building a new asset (or improving an existing one). Correct. I think the definition of savings in economics is wrong. I would suggest that the distinction between savings and investment is in with how much difficulty you can reverse your decision (that is, liquidity of the underlying asset). The boundary is fuzzy, but it is important to consider. So for instance, if I buy a new production line for cars, I cannot easily sell it (for the same price). I am hoping that it was a good decision, because it's hard to reverse (if I see tomorrow, that people actually don't want cars, I cannot easily start to make tractors). That is a decision which is investment. On the other hand, if I buy shares in a car company, and tomorrow I see that people don't want cars, I can change my mind, sell the shares, and buy some other company. This is savings, not investment. The reason why the reversibility is important is because if you are an economic actor and make an irreversible decision (like purchasing/building a production line), then other actors in the economy, who have savings, gain a certain advantage - they can react to your decision. They can follow, or they can avoid your investment, depending on how it pans out. This follows it's not always wise to invest, to make an irreversible decision. Sometimes it's better to wait - and that is saving. Therefore the distinction between savings and investment is actually very important for even macroeconomics. If you have an economy where everybody is waiting for good opportunity (saving), then there is no economic growth. They still can "formally" be investing (buying shares or other financial instruments from each other), but the irreversible (i.e. real) decisions do not get made.

by Lazare 7y ago

guelo 7y ago

Supply and demand balance out. The wheel spins slower if the money flows so disproportionately to the supply side that it lowers demand.

skybrian 7y ago

Savings being equal to investment isn't a material fact, it's an assumption built into some macroeconomic models. In order for savings to turn into an asset that increases production capacity (which is what we hope it's for), someone has to spend the money on building a new asset (or improving an existing one). In particular, asset inflation (price of land or stock going up) doesn't increase productive capacity in any material sense. And, that's what's worrying. How do we measure increase in productive capacity without assuming savings = investment? Also, the consumer price index doesn't measure inflation of assets owned by businesses. Are we assuming the market is efficient at pricing investments when it's actually just inflating? It seems like this is something economists are likely to worry about. Is there a literature on this?

js8 7y ago
> Savings being equal to investment isn't a material fact, it's an assumption built into some macroeconomic models. In order for savings to turn into an asset that increases production capacity (which is what we hope it's for), someone has to spend the money on building a new asset (or improving an existing one). Correct. I think the definition of savings in economics is wrong. I would suggest that the distinction between savings and investment is in with how much difficulty you can reverse your decision (that is, liquidity of the underlying asset). The boundary is fuzzy, but it is important to consider. So for instance, if I buy a new production line for cars, I cannot easily sell it (for the same price). I am hoping that it was a good decision, because it's hard to reverse (if I see tomorrow, that people actually don't want cars, I cannot easily start to make tractors). That is a decision which is investment. On the other hand, if I buy shares in a car company, and tomorrow I see that people don't want cars, I can change my mind, sell the shares, and buy some other company. This is savings, not investment. The reason why the reversibility is important is because if you are an economic actor and make an irreversible decision (like purchasing/building a production line), then other actors in the economy, who have savings, gain a certain advantage - they can react to your decision. They can follow, or they can avoid your investment, depending on how it pans out. This follows it's not always wise to invest, to make an irreversible decision. Sometimes it's better to wait - and that is saving. Therefore the distinction between savings and investment is actually very important for even macroeconomics. If you have an economy where everybody is waiting for good opportunity (saving), then there is no economic growth. They still can "formally" be investing (buying shares or other financial instruments from each other), but the irreversible (i.e. real) decisions do not get made.