14 August 2013

Some Last Thoughts on Saving

I have a few final thoughts on the subject of saving, before I get back to my promised posts on the three equations to explain the crisis.

Firstly, here is the World Bank series on real interest rates, posted for no other reasons than it is interesting to see, and because someone asked about the more recent data.

Source: World Bank

My other thought is what do we mean by saving. A lot of comments concern incentives to save. One idea of saving is someone putting money away for a later date. I think that is what Frances Coppola had in mind when she talked about savers complaining about low interest rates.

The savings data I have used is aggregate saving and so includes negative saving as well as positive. Positive saving happens when people consume less than their income and put the difference in the bank. Negative saving occurs when someone consumes more than their income and fills the gap by borrowing or running down their capital.

So when we think of incentives it is important to see both sides. There is perhaps here a difference of perspective. Looked at from the point of view of banks what incentivises their customers to save or to borrow is an important question. Indeed saving and borrowing are seen as very different activities. To an economist who thinks in aggregates, they are two aspects of the same thing.

The difference between banking and economic perspectives is a big topic and one I would like to explore, when work and family life allow.

One point I haven't touched on is investment, by which I mean the purchase of real capital assets. (The purchase of financial assets is a type of saving.) I tend to look at these things from a simple Keynesian perspective where income is split between consumption and saving; and saving is used to finance investment.

No comments:

Post a Comment