Comments on: The Case For And Against Keynes And Spending

By: Joe

Joe — Mon, 28 Feb 2011 14:55:00 +0000

You fail to take into account growing trade deficits in this picture. Low GDP growth combined with personal dissavings that are getting larger must take into account other variables. In this case you didn’t use the complete model on which Keynes theories of personal savings refer to. Personal savings and GDP are not the only variables you know.

By: Economics and Alcoholics | Weakonomi¢s

Economics and Alcoholics | Weakonomi¢s — Thu, 13 Aug 2009 14:27:53 +0000

[...] John Maynard Keynes is famous for having the cojones to tell people it’s bad to save. What he meant was that since [...]

By: MLR

MLR — Thu, 02 Jul 2009 06:55:02 +0000

Mike:

Here is an interesting graph that shows how all of the contributing factors affect GDP (American Institute for Economic Research):

http://www.aier.org/images/stories/research/gdpchg.png

Here is a graph that looks at personal consumption + government consumption + residential investment (mainly ppl buying homes… it’s an interesting argument to include that as consumption, not investment):

http://www.economicsjunkie.com/wp-content/uploads/2009/06/us-true-consumption-as-percentage-of-gdp-1929-2008.png

The avg from 1937 to today is about 90%.
.-= MLR´s last blog ..Weekly Mashup: 4th of July =-.

By: Mike

Mike — Wed, 01 Jul 2009 14:24:35 +0000

I’ve been curious about the percentage of consumption to GDP.

Has it always been 70%.

By: Weekly Mashup: 4th of July | My Life ROI, Getting the Best Return On Life

Weekly Mashup: 4th of July | My Life ROI, Getting the Best Return On Life — Wed, 01 Jul 2009 11:07:17 +0000

[...] wrote an interesting post that went over Keynes theory on saving and consumption. I don’t necessarily agree with some of the statements, but nonetheless it brings up questions [...]

By: the weakonomist

the weakonomist — Tue, 30 Jun 2009 02:14:10 +0000

ROI, my conclusion is an attempt to point out that there is no correlation in which to draw a causation from at all. I’ve attempted to clear this up a bit by re-writing it.

For transparency’s sake, I want future readers to know what I originally said, here it is:

The personal savings rate may play a role in GDP, however its specific rate has no significant impact on the health of an economy unless it reaches an extreme. Savings rates of 1% or less eventually lead to consumption bubbles and recessions and should be considered extreme. It’s theoretically possible that an ultra-high savings rate will also hurt the economy, but if it’s between 2% and 10% its contribution to GDP is not significant enough to warrant scrutiny or policy changes.

By: SJ

SJ — Tue, 30 Jun 2009 01:57:03 +0000

Isn't it just breakdown to a prisoner dilemma like situation? So let someone else fix the recession. lol. .-= SJ´s last blog ..SJ seeks “The Economic Naturalist” =-.

By: Rob Bennett

Rob Bennett — Mon, 29 Jun 2009 22:04:46 +0000

I believe that people get excited about Keynesian Economics because it is rooted in a reaction to Classical Economics, which is also terribly flawed. It’s another version of the left vs. right thing in politics.

I believe that we need fresh thinking. Both models have something to offer. Neither gets it all right.

Rob
.-= Rob Bennett´s last blog ..Podcast #122 — Only You Can Prevent Forest Fires (and Bull Markets!) =-.

By: Silicon Prairie

Silicon Prairie — Mon, 29 Jun 2009 20:54:33 +0000

As you point out, a lot of it is a short-term effect. The money that people save can lead to more consumption later, up to the point where there’s nothing worthwhile left to invest in for the future. What’s happening now is mostly a reaction and not much of a long-term change, although some people will have had enough of a shock to change their expectations for spending and investment for the rest of their lives. Once everyone feels more comfortable with their own situation and the economy it’s likely that they’ll continue much as they did before.

Another thing is that since credit is a major element of the current situation, savings can play a part in increasing the amount of credit available and make banks less risk-averse (and likewise investment in equities can lead to market rises). As Krugman demonstrates in The Return of Depression Economics, people saving too much can slow down an economy but mostly when they have to save before they can spend. When savings can be loaned out until you need them they have an immediate positive side.

The big picture is that most economies and the societies that support them have a set point of spending, growth, investment, etc and it changes very slowly. Save too much and you’ll delay growth; save too little and you’ll steal growth from the future; but if the larger pattern mostly remains the same. The easiest way to change that is to move somewhere with a different economy.

Personally I’m going to stay pretty high up the savings curve – a few thousand won’t make a difference to the economy, and if my spending is needed that badly I’m sure prices will come down to the point where I feel like it’s a good decision.

By: My Journey

My Journey — Mon, 29 Jun 2009 20:10:39 +0000

With increased savings comes – increased reserves in banks which increases the supply of money that can be lent which lowers interest rates which increases business expansion…so in the end DO NOT FEEL GUILTY – Save your butts off!
.-= My Journey´s last blog ..Financial Loss Syndrome Doesn’t Just Affect the Wealthy =-.