The Japanese may be good savers but their government sure isn't. The Japanese savings funds their bloated government.
MYTH #348, JAPAN IS NOT A GREAT SAVINGS COUNTRY. US SAVINGS RATE IS MEASURED EXCLUDING MANY RETIREMENT PLANS THAT JAPAN INCLUDES IN ITS MEASUREMENTS. When you measure US/Japan savings point for point, our savings rates are almost identical. The US consumer is not as fickle as the Japanese consumer, we BUY. Quit watching CNN and read a book...
The idea that savings *intrinsically* create economic value relative to consumption, or vice versa, is clearly wrong. If it were true, then the logical course of action would be to save all your money and never spend on anything at all; or to spend every last cent you have as soon as it arrives in your bank account, and never save. Both courses of action would lead to disaster for the vast majority of cases, which is why virtually no one does this. Consumption creates value - by definition you judge that what you consume is worth more than its market price, otherwise you wouldn't buy it in the first place. Savings which are invested profitably also create value. You put in x and get back more than x. Again, you would not save if you did not expect it to create value for you. So it is simply a question of which of the two alternatives creates *more* value. I.e. in your current situation, will one additional dollar spent on consumption give you more or less value than investing that same dollar for a future return? Across the economy as a whole, the relative attractiveness of consumption vs saving will be shown up by consumer and business preferences between the two. If people are spending more and saving less, then that is a pretty clear vote that spending is more attractive, and thus value creating, for them.
DING DING DING, YOU WIN THE SHOWCASE SHOWDOWN. That is exactly right, I had to chime in because after 8 pages of posts I was getting discouraged. If the naysayers had any arrows in their quiver they would classify savings as deferred consumption but I would be able to expand upon that too...
I beg to differ - I don't think that's the way the world actually works. People ought to be rational optimizing agents, sweating over their mental abacus about how much to save and how much to spend, but I think the reality is that they make haphazard decisions all the time in this regard. I think govt policies are a far more significant determinant in a nation's savings rate. For instance, IMHO, the biggest reason why the US has an infintesimal savings rate is because of the pay-as-you-go social security scheme. Consider this : In the US, a worker gives a portion of his salary to the Govt in the form of SS tax, which then passes it directly on to the retiree, who then promptly spends almost all of it. There is no savings component in this scheme. Unsurprisingly, the savings rate in the US is negligible. In Singapore, a worker gives a portion of his salary to the Govt, which then puts it into a fund. The funds add to a pool of savings. When the worker becomes a retiree, he can withdraw those fund. That's why the savings rate in Singapore is a remarkable 50%. Although the $ flows in the two systems could be identical, in the first, $ goes straight from one pocket to another. In the second, $ spends 30 years swimming around in the capital markets between pockets. It's true, the retiree could be using his SS checks to trade the ES , but it would only be some small % of his checks redeployed in the capital markets. Given the cost of medical care in this country today, somehow I suspect this to be a small %. In the case of Singapore, 100% of the checks are forced to spend a spell in capital markets purgatory. In Singapore, savings lower the cost of investment, which allow for continuing capital formation, the foundation for growth. In the US, vendor financing lowers the cost of investment. Remember when Cisco would sell routers to CLECs and then offer them loans to pay for them? Well replace Cisco with Japan + China and replace CLECs with the US.
Over the past 200 years, the annual returns of equities is roughly 8% ( probably more like 5% if you take out the last 20 years), with 62% of this gain coming from dividends. The other 30% comes from multiple-expansion. Food for thought.
citizennobody, Would you recommend one or two books on Macroeconomics? I prefer a book that sort of works it's way backwards towards the theory - I find those more readable, although most textbooks do not organize themselves that way. Maybe you can recommend one textbook (for reference) and one practical book (that ties to the theory) as a compromise. nitro