Economics filter: Can someone explain this article to me? How are capital accumulation, national savings, and consumption related?
March 11, 2008 9:51 AM Subscribe
Economics filter: Can someone explain this article to me? How are capital accumulation, national savings, and consumption related?
I know this is from 3 years ago, but I still want to understand! In the article, http://money.cnn.com/2005/02/25/news/economy/savings_rate/index.htm, Roger Ferguson said, "If households, on net, take steps to return the saving rate closer to the middle of that range, which, I might add, would provide welcome support to capital accumulation, then a sustained period in which consumption grows more slowly than income would result." What? I don't understand. What does he mean?
And also, when Tom Schlesinger says "Obviously consumption would take a hit if people save at the historic rate," does he just mean that Consumption is the inverse of Savings? I mean, besides in a whatever we don't consume we save way, what is he talking about? Are they disagreeing or what?
I know this is from 3 years ago, but I still want to understand! In the article, http://money.cnn.com/2005/02/25/news/economy/savings_rate/index.htm, Roger Ferguson said, "If households, on net, take steps to return the saving rate closer to the middle of that range, which, I might add, would provide welcome support to capital accumulation, then a sustained period in which consumption grows more slowly than income would result." What? I don't understand. What does he mean?
And also, when Tom Schlesinger says "Obviously consumption would take a hit if people save at the historic rate," does he just mean that Consumption is the inverse of Savings? I mean, besides in a whatever we don't consume we save way, what is he talking about? Are they disagreeing or what?
Ferguson and Schlesinger are almost certainly referring to the National Economic Accounts data from the BEA. The BEA is not directly measuring "savings" (as commonly understood) per se. Rather, they're more concerned about measuring the flow of money -- income and expenditures -- with savings defined as the difference between income and expenditures. So, in order to increase savings, you can either increase income and/or reduce expenditures. The idea is that the most likely avenue to increasing household savings (in the short run, at least) is to reduce expenditures (i.e.: personal consumption) while keeping income constant.
Way more than you needed to know about this data can be found here.
posted by mhum at 10:25 AM on March 11, 2008
Way more than you needed to know about this data can be found here.
posted by mhum at 10:25 AM on March 11, 2008
Response by poster: @Dasein: But if people are consuming a real lot, doesn't that mean that the companies are getting the money anyway? Wouldn't the funds be available to them because people are buying their goods and services, as opposed to investing in the stock market? Doesn't it seem like saving hurts the GDP? What if people don't invest with their savings, but keep it in cash?
posted by idledebonair at 10:41 AM on March 11, 2008
posted by idledebonair at 10:41 AM on March 11, 2008
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Americans don't save enough. I they start saving (one day they might have to) then they have to cut spending. Somehow obvious.
I am not sure that consumption is the inverse of savings from an absolute (not relative) perspective. You could imagine tremendous growth in income and productivity that would allow you to consume more and save more.
posted by yoyo_nyc at 10:12 AM on March 11, 2008