Either increased savings are good for the economy, as Richebacher presumably suggests because he says decreased savings are bad for it, or they are bad
don't mistake me for Richebacher and it will seem less confusing. geez, this morning i am supposedly Asensio and this evening Richebacher, just because i posted a link to somebody else's link to one article, mainly to bring up a statistic that had to do with a discussion about GDP regarding which i was right, and which you didn't accept simply because Richebacher didn't provide a footnote, even though i have never posted a link to him before or said anything one way or the other about his ideas (and i don't even read the dude!!!)????
i don't pretend to be an Austrian economist although some of their ideas are interesting. one thing to keep in mind is that a lot of their theory was written before the US hegemony got going into its present state.
the insight the Austrians make is that easy credit, in excess of "natural" savings, leads to a boom, which leads to malinvestment, which leads to destruction of capital and a bust. as part of the unwinding process, savings rate must increase.
to go with your addict analogy, the US is addicted to the savings of the rest of the world in lieu of its own savings. while it would be better if the US had never developed into such an irresponsible state of affairs (both on the macro and consumer levels), a sudden disruption of the current situation will be a shock to our economy, just as a sudden deprivation of heroin is a shock to the system of a heroin addict. while nonaddiction may be better in the long run, in the short run deprivation can prove fatal in some cases. similarly, deprivation of foreign capital, and the attendant increase in domestic savings rate, will be a severe shock on our system.
A healthy economy saves, transforms the savings into capital, and puts it to use. The examples you use indicate that high savings rates do not necessarily lead to capital formation. I have seen nothing to suggest that US savings are mis-used in this manner.
that is because the savings rate has been negative or near-negative! where do you think our "capital formation" has come from? from the kindness of strangers! this is pretty unique in economic history, i believe.
right now the US enjoys a very privileged position in the world economy. we are the world's reserve currency, so foreigners have literally done our savings for us. that really makes a big difference in the aggregate, due to the benefits of easy credit. they have really turned on the after-burners over the past decade.
when i bought my first house in the early 90s, you had to put down at least 10%, preferably 20%. nowadays, many people put down 3%, and 20% is not even very common. national home equity percentage is at an all time low! this is obviously a consequence of easy credit thanks to foreigners. when they go away, our meager native savings rate will not be sufficient to support low mortgage rates. an unwinding of this process (e.g., stricter loan-to-value requirements and a spurt in mortgages to the 8% range) alone should crash the economy. |
