Investment has to equal savings, right? And if investment falls short of domestic savings, foreign savings have to be imported, right? While I don't think a thrift program (a la that excellent passage in Keynes's Treatise with the phrase "into this paradise comes a thrift program...") is a good idea, isn't it the least bit problematic that the U.S. has been importing foreign savings? It makes us vulnerable to a cutoff of capital inflows, and starves the rest of the world of investment funds.
Doug
Forstater, Mathew wrote:
>Bill Vickrey:
>
>"Saving does not create "loanable funds" out of thin air. There is no
>presumption that the additional bank balance of the saver will increase
>the ability of his bank to extend credit by more than the credit
>supplying ability of the vendor's bank will be reduced. If anything, the
>vendor is more likely to be active in equities markets or to use credit
>enhanced by the sale to invest in his business, than a saver responding
>to inducements such as IRA's, exemption or deferral of taxes on pension
>fund accruals, and the like, so that the net effect of the saving
>inducement is to reduce the overall extension of bank loans. Attempted
>saving, with corresponding reduction in spending, does nothing to
>enhance the willingness of banks and other lenders to finance adequately
>promising investment projects. With unemployed resources available,
>saving is neither a prerequisite nor a stimulus to, but a consequence of
>capital formation, as the income generated by capital formation provides
>a source of additional savings."
>
>from http://www.cfeps.org/public/VickreyWP1.htm
>
>"Fifteen Fatal Fallacies of Financial Fundamentalism"
>
>also: "Why John Q. Public Can't Save"
>http://www.mosler.org/docs/docs/johnq_wsj.htm
>
>"With Johnny's savings tied up in pension plans, IRA's, etc., he reduces
>his net savings by borrowing to spend beyond his income... What happens
>as Johnny nears his credit limits? Sales slow as Johnny's spending
>slows. Inventories increase, jobs are lost, output, profits and income
>slow, as do tax payments, while unemployment compensation rises. All
>this causes Uncle's surplus to become deficit. Suddenly Johnny is both
>out of work and, ironically, saving again."