Why are corporations saving so much?

There has been much recent discussion of the topic and I apologize (to RA, among others) for being late to the party.  Here is one piece by Yves Smith in the NYT and here is an Economist symposium on the topic, with many first-rate contributors.  Overall I am puzzled at the nature of the worry here.  Corporations with cash surpluses are not destroying real resources, nor are they stuffing cash in their mattresses.  They are investing in financial assets.

Take a financially conservative corporation, which holds its surplus in the form of T-Bills.  If it bought the T-Bills fresh at auction, that's lending money out to the government and the capital is still deployed.  Isn't that called…in some circles…stimulus?  (I've even heard the multiplier might be 1.4!  Or does only the borrower get credit and not the lender?)  It's trickier if the corporation buys the T-Bill on the secondary market, but still a) someone else has the money now, and b) this resale opportunity encourages other investors to buy freshly created T-Bills, thus putting capital in the hands of the government.  In terms of final effect, there should be a near-equivalence between buying old and new T-Bills.

Of course you might think the government is not spending this money well, but that's the problem of the government, not the corporate surpluses, which indeed are being invested.  I ran a surplus this last year and paid off some of my mortgage; does anyone think I destroyed net real resource investment?  (In fact I redistributed profits away from the financial sector, I suspect, which is good for the real economy at this point.)

If velocity is too slow for a social optimum, is it the corporations — who strive to rapidly invest excess cash in the till — who are at fault?  Even if corporations are not helping matters, are they doing anything worse than passing off a hot potato?

You might make an external cost argument.  Perhaps each corporation does well by holding T-Bills, but the system as a whole suffers under the encroachment of state power and public sector expansion.  That's not an argument which many proponents….do I even need to finish this sentence?  

It is perfectly fine to claim that we have a sectoral misallocation and that high corporate cash reserves are a symptom of this problem, for instance maybe there is too much lending to the safer, commercial paper-issuing big corporations and not enough lending for higher-yielding, riskier start-ups (no one knows which risks to take), or whichever story you wish to tell.  I hold a version of that view myself, but it's very different from believing that high cash reserves are stifling investment per se.

By the way, these high cash reserves are one reason why I don't think Alex's nominal wage stickiness story explains current unemployment.

Why is it so frequent that economists take Keynes's analysis of sitting on currency and apply it to savings and investment?

File under "Yet another discussion of the Junker problem."


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