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The question you lead with may answer itself once you clearly distinguish between "saving" and "investing" -- you muddle those terms up quite a bit in your comm

• AnthonyMouse 13y ago
  > That there may be a second order effect via interest rates is somewhat plausible, but it just boggles the mind how many people seem to believe that this second order effect would ever trump the first order effect of savings decisions. This is just what I'm talking about. Dismissing the economic benefits of increased investment as "second order effects" when what really matters is whether the recipients of the money make more economically productive decisions than would the consumers in the alternative. Take the obvious example. On the one hand you can invest money in a local small business which would otherwise not have had an investor and will use the money to hire more local employees who will go on to pay local taxes (allowing lower tax rates or more local services) and consume further local goods and services. On the other hand, you can go to Walmart and buy some knickknacks from China, which will do very little for the local economy as the primary result will be to stimulate the economy in China. It seems exceedingly obvious that the investment can be better for the local or national economy than the consumption. On the other hand, you can easily imagine some investment choice that would be less beneficial than some consumption choice -- because what matters is not the distinction between savings or investment and consumption, it is the economic benefit to the local economy of the ultimate use of the money. > investment not in the sense of "buy some shares/funds", but in the sense of "create new means of production". That distinction is certainly important, but that's exactly what I'm talking about. If you buy some shares, now the person who sold them has the money. So what does that person do with it? Perhaps they immediately turn around and buy some shares in something else. Now that seller has the money, and so on until somebody does something with it other than buying shares. So what is that? It could be something useful, like some economically productive type of consumption, or increasing the means of production. It could be something stupid, like hoarding gold or sticking it in a mattress or buying a prime piece of real estate and then not using it for anything. But these are the same decisions that the original party faced, and there is no reason to expect that the seller(s) of the shares will be any better or worse at finding a productive use of the money than the original party would have been. Let's even go ahead and concede that on average savings are less economically productive than spending for some reason. You still have the same problem, because averages are not instances. There remain many instances of saving or investment that are more economically productive than many instances of spending, and preferring the latter to the former is conceding an enormous amount of economic inefficiency.
  • nhaehnle 13y ago
    In many cases there is no recipient of the money because we're talking about the bottom 80% in terms of wealth who typically just end up leaving the money in some form of savings account or paying down some debt. That is probably a wise decision for that individual, but it's not going to boost the economy. Your obvious example may be obvious to you, but it is not a typical example of savings decisions. That was my point: You have to distinguish clearly between savings decisions and investment decisions. Also, typical cases and averages are what matters when you look at the macroeconomy, and that's what you were talking about in your first comment to which I replied.
    • AnthonyMouse 13y ago
      > In many cases there is no recipient of the money because we're talking about the bottom 80% in terms of wealth who typically just end up leaving the money in some form of savings account or paying down some debt. How do you mean there is no recipient? In that case the recipient is the lender or the bank, which allows them to lend the money to someone else. You might also be surprised how good for the economy paying down debts can be in the long term. The person who paid the debt is not paying interest on it anymore, and has now improved their credit worthiness, which reduces the interest they pay on all of their remaining debts. The interest not paid can be spent or used to pay further debts (virtuous cycle). Or in the future the borrower can leverage the increased credit worthiness into more borrowing at lower monthly payments, allowing increased future spending. This is really one of those situations where politics and reality collide. Having the middle class pay down their debts is great for the economy in the long-term. But it may not do anything much today, which is what politicians care about when they're running to reelection. Hence we have a bunch of backward-facing policies that prioritize spending over saving when they are both important to economic growth and the choices between one and the other would be more efficiently made by the people.
      • nhaehnle 13y ago
        When you pay down bank debt, the money just disappears, hence no recipient. Similarly, if you save money at your bank, your bank doesn't actually get more money. At best, you're shifting it from a checking account to a savings account.