If only Greenspan spent some of his tub time concocting Island stories, people might realize the gist of what he attempts to convey.
For example, in one session before congress, he was asked about funding the future retirement liabilities of the boomers. His response was (and I paraphrase hopefully correctly from memory) that investment today in productive capacity would be the best means to address that issue.
His response is quite correct, quite simple, and yet went completely not understood by just about everyone, IMO.
If I defer buying steak today to save dollars for retirement, that depresses demand, thus prices, for steaks. Eventually, less calves are produced, and the capacity to produce steaks shrinks.
Then, I retire and tap my savings to buy a steak, increasing demand, thus prices, meaning my savings are unable to buy as much steak as they may have had I not saved. Eventually, more calves and grain are produced in response to the demand, and prices shrink.
An engineer might see a ringing function, and attempt to apply some form of feedback to dampen this function- which is the purpose of setting policy.
My act of deferring consumption actually decreased the amount of future production available to meet my future desires for consumption.
If a person understands this, then they understand that placing the focus on 'increased savings' rather than investment in efficient means of productions is folly.
Greenspan truly is an intelligent man, despite a lack of understanding of his statements in many quarters, which are taken out of context and ridiculed by people who haven't worked to develop a deeper understanding of the message. |
