Sentences to ponder, secular stagnation and aggregate demand

by on July 2, 2014 at 12:03 pm in Economics, Uncategorized | Permalink

…in reality the very period over which income inequality has increased the most, total savings rates have fallen precipitously…

That is from Ashok Rao, and on secular stagnation theories more generally there is more here.

Sam July 2, 2014 at 12:53 pm

Surely a big factor to that ‘precipitously’ falling saving was globalization. In a more open economy you don’t need as much domestic saving to finance your investment. Bernanke’s ‘Global Savings Glut’ argument is based on capital inflows into the US. Thus the relevant ‘gross savings’ figure is global, or at least includes those GSG countries. And world savings are WAY up http://www.voxeu.org/article/global-saving-glut-will-hold-bond-yields-down

Ashok Rao July 2, 2014 at 3:11 pm

Note this is a period over which world inequality has fallen.

Just Another MR Blogger July 2, 2014 at 2:08 pm

And here someone notices that people who earn less money also end up saving less money. This and more shocking observations coming your way on the #1 Koch-funded blog on the interwebs.

Urso July 2, 2014 at 2:45 pm

It just cracks me up, the thought of David Koch picking up the red phone and shouting “COWEN! I just read an NBER working paper on the relative efficiencies of various programming languages! Get that on the blog STAT!”

The Other Jim July 2, 2014 at 6:31 pm

I guess I’m too old to find idiocy amusing. Among grown-ups, at least.

They actually think that anyone who deviates from boilerplate cliched liberalism cannot possibly believe what they are saying. The only explanation is that they are being paid to lie.

This is deeply sad.

Alexei July 2, 2014 at 4:14 pm

>people who earn less money

I’ve located a problem with the premises here.

Jason Smith July 2, 2014 at 2:27 pm

Secular stagnation is a general property of economies as they get larger using a “maximum entropy” model where an economy consists of 100s of random goods markets:

http://informationtransfereconomics.blogspot.com/2014/06/output-and-price-level-behavior-across.html

So Much for Subtlety July 2, 2014 at 6:10 pm

When the economy goes into a downturn, some people will be resistant to spending less than they are accustomed to. They will continue to spend more than they should and run down their savings. This is not unexpected. At some point their expectations will adjust and they will make another calculation of what they can afford and what they need to save for the future. Especially if Obama’s poor handling of the economy continues and the downturn is not as temporary as it should have been.

However Obamacare may have an impact. East Asian save because they need to prepare for many things covered by Western welfare states such as medical costs. If the Feds are taking over more medical bills, then people will feel less pressure to save as well. Although I would expect it is too soon for this to have much of an impact.

Clover July 2, 2014 at 6:57 pm

If the poor have less, they will save less.

Cliff July 3, 2014 at 12:17 am

The poor don’t have less and never saved anything anyway

Uncle Joe July 2, 2014 at 8:21 pm

At least in this country there’s no paradox at all. The poor whose wages are flat or decreasing can’t save money. Moreover they and the middle classes save by putting money in the pension plan or paying down the mortgage.Neither of these give you immediate money-in-your-hand savings. The rich who hold securities or real estate that are appreciating in value don’t have to and indeed, since they try to avoid “actual”income in favor of options,capital gains etc or other forms of perceptible income because of tax reasons “save” less but “have” more. So GDP rises and “savings” diminish. It’s all in the definitions. This is all perfectly obvious.
And you can’t compare the Developing World where people must save because education for the children, medical treatment and retirement don’t exist in the way they do for us and must be paid for. So people must save. So they do. In China, for example, the rich are getting richer at a speed greater than the poor are saving. But overall the poor are doing better. Comparison is apples and oranges.
The fact that economists can’t see what is under their noses does not speak well of the profession.

Cliff July 3, 2014 at 12:25 am

“Gross private saving is the broadest measure of saving and accounts for increased savings in the form of corporate profits.”

Uncle Joe July 2, 2014 at 8:22 pm

At least in this country there’s no paradox at all. The poor whose wages are flat or decreasing can’t save money. Moreover they and the middle classes save by putting money in the pension plan or paying down the mortgage.Neither of these give you immediate money-in-your-hand savings. The rich who hold securities or real estate that are appreciating in value don’t have to and indeed, since they try to avoid “actual”income in favor of options,capital gains etc or other forms of perceptible income because of tax reasons “save” less but “have” more. So GDP rises and “savings” diminish. It’s all in the definitions. This is all perfectly obvious.
And you can’t compare the Developing World where people must save because education for the children, medical treatment and retirement don’t exist in the way they do for us and must be paid for. So people must save. So they do. In China, for example, the rich are getting richer at a speed greater than the poor are saving. But overall the poor are doing better and are duy grateful.. Comparison is apples and oranges.
The fact that economists can’t see what is under their noses does not speak well of the profession.

Memnon July 3, 2014 at 12:37 pm

The relevant individuals no longer understand or appreciate the concept of saving, ie putting resources in store for the future. They believe in “investing” which they have been told is so superior to the “saving” of the past that only losers save. The way to go is to run up debt on consumption while being on the lookout for the right opportunity to go all-in a ride that sucker all the way into the .01%.

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