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S=I is tautological, from the definition of the model. One guy had $1000 and no solar panels, another guy has $0 and 1 solar panel, maybe they trade. What cha

S=I is tautological, from the definition of the model. One guy had $1000 and no solar panels, another guy has $0 and 1 solar panel, maybe they trade. What changes about your definition of savings and investment if they do or don't trade? Nothing. > People make the mistake of thinking savings are desirable as compared to what? > not understanding that formal language has separated the idea of savings I assure you every economist knows the difference between putting money in a bank and manufacturing a car. S=I says nothing about the usefulness, causality, or predictions about the economy. It would be like determining the state of a business by whether their assets equal liabilities. If assets != liabilities, you have an accounting error, not an unprofitable business.

roenxi 4y ago
Oh yeah, I forgot the economists had repurposed "investment" formally to mean something useless too. I'm using the word in the informal sense of gaining control of capital, not in the sense of a flow in an economic model. Sorry for not being clear there. I don't use the word in the sense of S=I because some savings go to things that I don't recognise as investment (because they are value-destructive). > as compared to what? Value add. As you demonstrate in your $1,000 example, if S=I the value of both is largely meaningless. The important part of what is happening is the value-add from the manufacturing of the solar panel and the trade itself, neither of which is being quantified by the dollar value. We can also observe that until the person with the money spends it, the only person who has experienced a material improvement in their life is the person who ended up controlling the solar panel. Too much capital at the moment is going in to activity that destroys value (I like to cite Uber as an nice example). People learning more about accounting identities just confuses them because they stop looking at whether activities add or destroy value. The technical terms for saving and investment aren't useful for improving people's lives and it doesn't matter if they get them wrong.

roenxi 4y ago

Oh yeah, I forgot the economists had repurposed "investment" formally to mean something useless too. I'm using the word in the informal sense of gaining control of capital, not in the sense of a flow in an economic model. Sorry for not being clear there. I don't use the word in the sense of S=I because some savings go to things that I don't recognise as investment (because they are value-destructive). > as compared to what? Value add. As you demonstrate in your $1,000 example, if S=I the value of both is largely meaningless. The important part of what is happening is the value-add from the manufacturing of the solar panel and the trade itself, neither of which is being quantified by the dollar value. We can also observe that until the person with the money spends it, the only person who has experienced a material improvement in their life is the person who ended up controlling the solar panel. Too much capital at the moment is going in to activity that destroys value (I like to cite Uber as an nice example). People learning more about accounting identities just confuses them because they stop looking at whether activities add or destroy value. The technical terms for saving and investment aren't useful for improving people's lives and it doesn't matter if they get them wrong.