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The Paradox of Thrift

Cowboy0108
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5/13/2015 10:33:39 PM
Posted: 1 year ago
Which is better for the economy, to save or to spend.
I think that it is more important to save because the more money the banks have in their reserves, the lower the interest rates are. This enables businesses to expand more easily and efficiently. Of course, sustainable spending is necessary for the economy, but I think that a dollar saved is worth more for the economy than the same amount spent because the money that is saved is given to someone else and spent doing something that benefits the economy.
Still, what do you think?
Chang29
Posts: 732
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5/14/2015 4:13:30 AM
Posted: 1 year ago
At 5/13/2015 10:33:39 PM, Cowboy0108 wrote:
Which is better for the economy, to save or to spend.
I think that it is more important to save because the more money the banks have in their reserves, the lower the interest rates are. This enables businesses to expand more easily and efficiently. Of course, sustainable spending is necessary for the economy, but I think that a dollar saved is worth more for the economy than the same amount spent because the money that is saved is given to someone else and spent doing something that benefits the economy.
Still, what do you think?

The "Paradox of Thrift" is only a paradox due to method of economic measurement. If personal savings were included in GDP calculations, savings would not create a paradox. In management, "what gets measured, gets done", thus if not included in the top measurement then it is unimportant.
A free market anti-capitalist

If it can be de-centralized, it will be de-centralized.
ResponsiblyIrresponsible
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5/14/2015 6:09:41 AM
Posted: 1 year ago
At 5/14/2015 4:13:30 AM, Chang29 wrote:
The "Paradox of Thrift" is only a paradox due to method of economic measurement. If personal savings were included in GDP calculations, savings would not create a paradox. In management, "what gets measured, gets done", thus if not included in the top measurement then it is unimportant.

This proves that you don't know what you're talking - savings *is* include in GDP calculations, but to physically add it would be double counting.

GDP is total income - savings comes out of total income. To have savings, you must have income. Observe, for instance:

GDP = C + I + G + NX

GDP - C - G = I + NX

GDP - C - G = S = I + NX

Or, we could express it another way:

GDP = C + S + T

The logic behind the "paradox of thrift" is that, at the zero lower bound, an increase in savings means a decline in consumption; amid an AD shortfall, that translates to a fall in investment amongst firms, both of which decrease inflation and increase real interest rates, leading to a self-reinforcing spiral whereby people cut back at the same time.

But you'll note the special case of the ZLB. There are two stipulations that must be true for the paradox to hold:

(i) We hold monetary policy - and hence inflation expectations - constant.
(ii) We assume we're at the ZLB, such that a fall in inflation translates to an increase in real rates - which, again, requires a ceteris-paribus condition.

I think the paradox of thrift is largely irrelevant because of monetary offset - but that's a side issue.
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lannan13
Posts: 23,065
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5/14/2015 2:19:22 PM
Posted: 1 year ago
At 5/13/2015 10:33:39 PM, Cowboy0108 wrote:
Which is better for the economy, to save or to spend.
I think that it is more important to save because the more money the banks have in their reserves, the lower the interest rates are. This enables businesses to expand more easily and efficiently. Of course, sustainable spending is necessary for the economy, but I think that a dollar saved is worth more for the economy than the same amount spent because the money that is saved is given to someone else and spent doing something that benefits the economy.
Still, what do you think?

Spend, if you save your money it's not helping the economy and not stimulating buisness.
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If the sky's the limit then why do we have footprints on the Moon? I'm shooting my aspirations for the stars.

"If you are going through hell, keep going." "Sir Winston Churchill

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Cowboy0108
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5/14/2015 2:35:42 PM
Posted: 1 year ago
Spend, if you save your money it's not helping the economy and not stimulating buisness.

But do investments not stimulate business equally if not more. A dollar spent is just a dollar spent. However, a dollar saved is still spent AND it accumulates interest, increasing the overall buying power of the saver. Furthermore, when the dollar saved is spent by the borrower, it is often used to expand businesses which lowers unemployment. Certainly, spending is necessary for the economy and for the consumers. However, when given the choice of what to do with excess money, I believe that it is better for the economy and individuals to save and use the accumulated interest to spend on the fun stuff.
lannan13
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5/14/2015 2:39:21 PM
Posted: 1 year ago
At 5/14/2015 2:35:42 PM, Cowboy0108 wrote:
Spend, if you save your money it's not helping the economy and not stimulating buisness.

But do investments not stimulate business equally if not more. A dollar spent is just a dollar spent. However, a dollar saved is still spent AND it accumulates interest, increasing the overall buying power of the saver. Furthermore, when the dollar saved is spent by the borrower, it is often used to expand businesses which lowers unemployment. Certainly, spending is necessary for the economy and for the consumers. However, when given the choice of what to do with excess money, I believe that it is better for the economy and individuals to save and use the accumulated interest to spend on the fun stuff.

Sure, but money just sitting in a bank doesn't help the economy. If you spend it you are spurring economic growth by showing demand for a product or service and that company, as a result, would have to make more products and higher more people.
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If the sky's the limit then why do we have footprints on the Moon? I'm shooting my aspirations for the stars.

"If you are going through hell, keep going." "Sir Winston Churchill

"No one can make you feel inferior without your consent." "Eleanor Roosevelt

Topics I want to debate. (http://tinyurl.com...)
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Cowboy0108
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5/14/2015 2:42:46 PM
Posted: 1 year ago
Sure, but money just sitting in a bank doesn't help the economy. If you spend it you are spurring economic growth by showing demand for a product or service and that company, as a result, would have to make more products and higher more people.

But money does not just sit in a bank. Approximately 10% of it does because of the reserve requirement put in place by the Fed, but 90% of it is lent out to businesses, prospective homeowners, etc. Banks do not make money by holding onto it; they make money by giving it out to credit worthy members.
lannan13
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5/14/2015 2:50:55 PM
Posted: 1 year ago
At 5/14/2015 2:42:46 PM, Cowboy0108 wrote:
Sure, but money just sitting in a bank doesn't help the economy. If you spend it you are spurring economic growth by showing demand for a product or service and that company, as a result, would have to make more products and higher more people.

But money does not just sit in a bank. Approximately 10% of it does because of the reserve requirement put in place by the Fed, but 90% of it is lent out to businesses, prospective homeowners, etc. Banks do not make money by holding onto it; they make money by giving it out to credit worthy members.

I know it just doesn't "sit" there, but the consumer isn't doing anything with it. The banks will have money reguardless.
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If the sky's the limit then why do we have footprints on the Moon? I'm shooting my aspirations for the stars.

"If you are going through hell, keep going." "Sir Winston Churchill

"No one can make you feel inferior without your consent." "Eleanor Roosevelt

Topics I want to debate. (http://tinyurl.com...)
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Cowboy0108
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5/14/2015 2:54:51 PM
Posted: 1 year ago

I know it just doesn't "sit" there, but the consumer isn't doing anything with it. The banks will have money reguardless.

The consumer is gaining interest off of that money. Thus, giving them more to spend in times of economic shocks or giving them additional money to spend on wasteful activities.
The money saved is actually spent, and by saving, the saver has more money to spend anyways(just in the long term). It is a win-win if you ask me.
lannan13
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5/14/2015 3:07:23 PM
Posted: 1 year ago
At 5/14/2015 2:54:51 PM, Cowboy0108 wrote:

I know it just doesn't "sit" there, but the consumer isn't doing anything with it. The banks will have money reguardless.

The consumer is gaining interest off of that money. Thus, giving them more to spend in times of economic shocks or giving them additional money to spend on wasteful activities.
The money saved is actually spent, and by saving, the saver has more money to spend anyways(just in the long term). It is a win-win if you ask me.

Banks give businesses loans to buy things they and raw materials they need, but if the consumer isn't buying the product now, then the buisness is more likely to become bankrupt due to being unable to turn a profit to pay off those debts.
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If the sky's the limit then why do we have footprints on the Moon? I'm shooting my aspirations for the stars.

"If you are going through hell, keep going." "Sir Winston Churchill

"No one can make you feel inferior without your consent." "Eleanor Roosevelt

Topics I want to debate. (http://tinyurl.com...)
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ResponsiblyIrresponsible
Posts: 12,398
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5/14/2015 3:47:10 PM
Posted: 1 year ago
At 5/14/2015 2:19:22 PM, lannan13 wrote:
At 5/13/2015 10:33:39 PM, Cowboy0108 wrote:
Which is better for the economy, to save or to spend.
I think that it is more important to save because the more money the banks have in their reserves, the lower the interest rates are. This enables businesses to expand more easily and efficiently. Of course, sustainable spending is necessary for the economy, but I think that a dollar saved is worth more for the economy than the same amount spent because the money that is saved is given to someone else and spent doing something that benefits the economy.
Still, what do you think?

Spend, if you save your money it's not helping the economy and not stimulating buisness.

Robert Solow would disagree!

I can draw the model for you if you ever want to get on Twiddla, lol. It applies to the "very long run," but I think the principle is sound.
~ResponsiblyIrresponsible

DDO's Economics Messiah
lannan13
Posts: 23,065
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5/14/2015 4:00:10 PM
Posted: 1 year ago
At 5/14/2015 3:47:10 PM, ResponsiblyIrresponsible wrote:
At 5/14/2015 2:19:22 PM, lannan13 wrote:
At 5/13/2015 10:33:39 PM, Cowboy0108 wrote:
Which is better for the economy, to save or to spend.
I think that it is more important to save because the more money the banks have in their reserves, the lower the interest rates are. This enables businesses to expand more easily and efficiently. Of course, sustainable spending is necessary for the economy, but I think that a dollar saved is worth more for the economy than the same amount spent because the money that is saved is given to someone else and spent doing something that benefits the economy.
Still, what do you think?

Spend, if you save your money it's not helping the economy and not stimulating buisness.

Robert Solow would disagree!

I can draw the model for you if you ever want to get on Twiddla, lol. It applies to the "very long run," but I think the principle is sound.

Who?
-~-~-~-~-~-~-~-Lannan13'S SIGNATURE-~-~-~-~-~-~-~-

If the sky's the limit then why do we have footprints on the Moon? I'm shooting my aspirations for the stars.

"If you are going through hell, keep going." "Sir Winston Churchill

"No one can make you feel inferior without your consent." "Eleanor Roosevelt

Topics I want to debate. (http://tinyurl.com...)
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ResponsiblyIrresponsible
Posts: 12,398
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5/14/2015 4:01:12 PM
Posted: 1 year ago
At 5/14/2015 4:00:10 PM, lannan13 wrote:
At 5/14/2015 3:47:10 PM, ResponsiblyIrresponsible wrote:
At 5/14/2015 2:19:22 PM, lannan13 wrote:
At 5/13/2015 10:33:39 PM, Cowboy0108 wrote:
Which is better for the economy, to save or to spend.
I think that it is more important to save because the more money the banks have in their reserves, the lower the interest rates are. This enables businesses to expand more easily and efficiently. Of course, sustainable spending is necessary for the economy, but I think that a dollar saved is worth more for the economy than the same amount spent because the money that is saved is given to someone else and spent doing something that benefits the economy.
Still, what do you think?

Spend, if you save your money it's not helping the economy and not stimulating buisness.

Robert Solow would disagree!

I can draw the model for you if you ever want to get on Twiddla, lol. It applies to the "very long run," but I think the principle is sound.

Who?

A Nobel Laureate from MIT who's done a lot of work on exogenous growth models.
~ResponsiblyIrresponsible

DDO's Economics Messiah
lannan13
Posts: 23,065
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5/14/2015 4:05:21 PM
Posted: 1 year ago
At 5/14/2015 4:01:12 PM, ResponsiblyIrresponsible wrote:
At 5/14/2015 4:00:10 PM, lannan13 wrote:
At 5/14/2015 3:47:10 PM, ResponsiblyIrresponsible wrote:
At 5/14/2015 2:19:22 PM, lannan13 wrote:
At 5/13/2015 10:33:39 PM, Cowboy0108 wrote:
Which is better for the economy, to save or to spend.
I think that it is more important to save because the more money the banks have in their reserves, the lower the interest rates are. This enables businesses to expand more easily and efficiently. Of course, sustainable spending is necessary for the economy, but I think that a dollar saved is worth more for the economy than the same amount spent because the money that is saved is given to someone else and spent doing something that benefits the economy.
Still, what do you think?

Spend, if you save your money it's not helping the economy and not stimulating buisness.

Robert Solow would disagree!

I can draw the model for you if you ever want to get on Twiddla, lol. It applies to the "very long run," but I think the principle is sound.

Who?

A Nobel Laureate from MIT who's done a lot of work on exogenous growth models.

Any readings on the Gent?
-~-~-~-~-~-~-~-Lannan13'S SIGNATURE-~-~-~-~-~-~-~-

If the sky's the limit then why do we have footprints on the Moon? I'm shooting my aspirations for the stars.

"If you are going through hell, keep going." "Sir Winston Churchill

"No one can make you feel inferior without your consent." "Eleanor Roosevelt

Topics I want to debate. (http://tinyurl.com...)
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ResponsiblyIrresponsible
Posts: 12,398
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5/14/2015 4:06:30 PM
Posted: 1 year ago
At 5/14/2015 4:05:21 PM, lannan13 wrote:
At 5/14/2015 4:01:12 PM, ResponsiblyIrresponsible wrote:
At 5/14/2015 4:00:10 PM, lannan13 wrote:
At 5/14/2015 3:47:10 PM, ResponsiblyIrresponsible wrote:
At 5/14/2015 2:19:22 PM, lannan13 wrote:
At 5/13/2015 10:33:39 PM, Cowboy0108 wrote:
Which is better for the economy, to save or to spend.
I think that it is more important to save because the more money the banks have in their reserves, the lower the interest rates are. This enables businesses to expand more easily and efficiently. Of course, sustainable spending is necessary for the economy, but I think that a dollar saved is worth more for the economy than the same amount spent because the money that is saved is given to someone else and spent doing something that benefits the economy.
Still, what do you think?

Spend, if you save your money it's not helping the economy and not stimulating buisness.

Robert Solow would disagree!

I can draw the model for you if you ever want to get on Twiddla, lol. It applies to the "very long run," but I think the principle is sound.

Who?

A Nobel Laureate from MIT who's done a lot of work on exogenous growth models.

Any readings on the Gent?

The Gent? Or do you mean Solow?

If so, I'd recommend his 1956 paper: http://www.econ.nyu.edu...
~ResponsiblyIrresponsible

DDO's Economics Messiah
Chang29
Posts: 732
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5/14/2015 8:03:46 PM
Posted: 1 year ago
At 5/14/2015 6:09:41 AM, ResponsiblyIrresponsible wrote:
At 5/14/2015 4:13:30 AM, Chang29 wrote:
The "Paradox of Thrift" is only a paradox due to method of economic measurement. If personal savings were included in GDP calculations, savings would not create a paradox. In management, "what gets measured, gets done", thus if not included in the top measurement then it is unimportant.

This proves that you don't know what you're talking - savings *is* include in GDP calculations, but to physically add it would be double counting.

GDP is total income - savings comes out of total income. To have savings, you must have income. Observe, for instance:

GDP = C + I + G + NX

GDP - C - G = I + NX

GDP - C - G = S = I + NX

Or, we could express it another way:

GDP = C + S + T

The logic behind the "paradox of thrift" is that, at the zero lower bound, an increase in savings means a decline in consumption; amid an AD shortfall, that translates to a fall in investment amongst firms, both of which decrease inflation and increase real interest rates, leading to a self-reinforcing spiral whereby people cut back at the same time.

But you'll note the special case of the ZLB. There are two stipulations that must be true for the paradox to hold:

(i) We hold monetary policy - and hence inflation expectations - constant.
(ii) We assume we're at the ZLB, such that a fall in inflation translates to an increase in real rates - which, again, requires a ceteris-paribus condition.

I think the paradox of thrift is largely irrelevant because of monetary offset - but that's a side issue.

Ok, I should have said not counted as a negative. It is still only a paradox due to the method measurement. GDP is just about money changing hands.
A free market anti-capitalist

If it can be de-centralized, it will be de-centralized.
ResponsiblyIrresponsible
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5/14/2015 8:08:42 PM
Posted: 1 year ago
At 5/14/2015 8:03:46 PM, Chang29 wrote:
At 5/14/2015 6:09:41 AM, ResponsiblyIrresponsible wrote:
At 5/14/2015 4:13:30 AM, Chang29 wrote:
The "Paradox of Thrift" is only a paradox due to method of economic measurement. If personal savings were included in GDP calculations, savings would not create a paradox. In management, "what gets measured, gets done", thus if not included in the top measurement then it is unimportant.

This proves that you don't know what you're talking - savings *is* include in GDP calculations, but to physically add it would be double counting.

GDP is total income - savings comes out of total income. To have savings, you must have income. Observe, for instance:

GDP = C + I + G + NX

GDP - C - G = I + NX

GDP - C - G = S = I + NX

Or, we could express it another way:

GDP = C + S + T

The logic behind the "paradox of thrift" is that, at the zero lower bound, an increase in savings means a decline in consumption; amid an AD shortfall, that translates to a fall in investment amongst firms, both of which decrease inflation and increase real interest rates, leading to a self-reinforcing spiral whereby people cut back at the same time.

But you'll note the special case of the ZLB. There are two stipulations that must be true for the paradox to hold:

(i) We hold monetary policy - and hence inflation expectations - constant.
(ii) We assume we're at the ZLB, such that a fall in inflation translates to an increase in real rates - which, again, requires a ceteris-paribus condition.

I think the paradox of thrift is largely irrelevant because of monetary offset - but that's a side issue.


Ok, I should have said not counted as a negative. It is still only a paradox due to the method measurement. GDP is just about money changing hands.

Part of it's changing hands, sure - that's velocity, though obviously the other component is the increase in the monetary supply (i.e., increased in bank lending). I'm not seeing your problem: that's how economies grow.
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Cowboy0108
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5/14/2015 8:25:12 PM
Posted: 1 year ago
Ok, I should have said not counted as a negative. It is still only a paradox due to the method measurement. GDP is just about money changing hands.

From my experience, the paradox arose because it was believed that saving was better for the individual and spending was better for the economy as a whole.
However, this is because most people do not consider the effect of saving on interest rates and, in turn, investing. Which, of course, leads to economic growth and real GDP growth.
Chang29
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5/14/2015 8:37:32 PM
Posted: 1 year ago
At 5/14/2015 8:08:42 PM, ResponsiblyIrresponsible wrote:
At 5/14/2015 8:03:46 PM, Chang29 wrote:
At 5/14/2015 6:09:41 AM, ResponsiblyIrresponsible wrote:
At 5/14/2015 4:13:30 AM, Chang29 wrote:
The "Paradox of Thrift" is only a paradox due to method of economic measurement. If personal savings were included in GDP calculations, savings would not create a paradox. In management, "what gets measured, gets done", thus if not included in the top measurement then it is unimportant.

This proves that you don't know what you're talking - savings *is* include in GDP calculations, but to physically add it would be double counting.

GDP is total income - savings comes out of total income. To have savings, you must have income. Observe, for instance:

GDP = C + I + G + NX

GDP - C - G = I + NX

GDP - C - G = S = I + NX

Or, we could express it another way:

GDP = C + S + T

The logic behind the "paradox of thrift" is that, at the zero lower bound, an increase in savings means a decline in consumption; amid an AD shortfall, that translates to a fall in investment amongst firms, both of which decrease inflation and increase real interest rates, leading to a self-reinforcing spiral whereby people cut back at the same time.

But you'll note the special case of the ZLB. There are two stipulations that must be true for the paradox to hold:

(i) We hold monetary policy - and hence inflation expectations - constant.
(ii) We assume we're at the ZLB, such that a fall in inflation translates to an increase in real rates - which, again, requires a ceteris-paribus condition.

I think the paradox of thrift is largely irrelevant because of monetary offset - but that's a side issue.


Ok, I should have said not counted as a negative. It is still only a paradox due to the method measurement. GDP is just about money changing hands.

Part of it's changing hands, sure - that's velocity, though obviously the other component is the increase in the monetary supply (i.e., increased in bank lending). I'm not seeing your problem: that's how economies grow.

Method of measurement effects results, managers will state things like "What gets measured, gets done". Since savings is negative in GDP calculations, those in charge of economic incentives and central economic controls with place incentives to discourage savings. Especially when those planners are only looking to a quarter to quarter rise in GDP.

Money changing hands is important and will happen, people will always want more than they have. Savings and real wealth creation is how individuals build strength of their own economy. GDP calculations which treat actions that are good for long term individual wealth building as an collective economic growth negative, should be considered economist malpractice.
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If it can be de-centralized, it will be de-centralized.
ResponsiblyIrresponsible
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5/14/2015 8:42:33 PM
Posted: 1 year ago
At 5/14/2015 8:37:32 PM, Chang29 wrote:
Method of measurement effects results, managers will state things like "What gets measured, gets done". Since savings is negative in GDP calculations, those in charge of economic incentives and central economic controls with place incentives to discourage savings. Especially when those planners are only looking to a quarter to quarter rise in GDP.

But it's not negative. I just proved that to you mathematically. If they were looking to boost GDP, that is by definition boosting savings.

Conspiratorial nonsense aside, I agree with you that savings are important, and there are far too many policies that discourage it.

Money changing hands is important and will happen, people will always want more than they have. Savings and real wealth creation is how individuals build strength of their own economy. GDP calculations which treat actions that are good for long term individual wealth building as an collective economic growth negative, should be considered economist malpractice.

But it doesn't consider it negative. That just isn't true - the impact of savings on GDP is largely implicit (and reverse causation mostly) and over a longer period of time, though both of us agree that it's important - both for long-run growth, innovation, and resiliency to shocks. There is, for once, almost no disagreement.
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Chang29
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5/14/2015 10:02:00 PM
Posted: 1 year ago
At 5/14/2015 8:42:33 PM, ResponsiblyIrresponsible wrote:
At 5/14/2015 8:37:32 PM, Chang29 wrote:
Method of measurement effects results, managers will state things like "What gets measured, gets done". Since savings is negative in GDP calculations, those in charge of economic incentives and central economic controls with place incentives to discourage savings. Especially when those planners are only looking to a quarter to quarter rise in GDP.

But it's not negative. I just proved that to you mathematically. If they were looking to boost GDP, that is by definition boosting savings.

Conspiratorial nonsense aside, I agree with you that savings are important, and there are far too many policies that discourage it.

Central controllers of economic policy disagree with your assessment, they see savings as money that is not adding to GDP calculation. Not a conspiracy, the inventors were strait forward with their intentions of central economic controls, and savings reduces the effectiveness of the methods used to control economies.


Money changing hands is important and will happen, people will always want more than they have. Savings and real wealth creation is how individuals build strength of their own economy. GDP calculations which treat actions that are good for long term individual wealth building as an collective economic growth negative, should be considered economist malpractice.

But it doesn't consider it negative. That just isn't true - the impact of savings on GDP is largely implicit (and reverse causation mostly) and over a longer period of time, though both of us agree that it's important - both for long-run growth, innovation, and resiliency to shocks. There is, for once, almost no disagreement.

It is considered negative, as an economic Nobel prize winners said "one person's spending is another's income" in other words, if a person saves money that is hurting another's current income.
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5/14/2015 10:15:19 PM
Posted: 1 year ago
It is considered negative, as an economic Nobel prize winners said "one person's spending is another's income" in other words, if a person saves money that is hurting another's current income.

Sure, but do not forget that an economy based solely on spending would not grow as quickly because credit would be so expensive that potential employers would not be able to create and expand a business. So yes, one's spending is another's income. But one's saving is another's job.
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5/14/2015 10:57:54 PM
Posted: 1 year ago
At 5/14/2015 10:15:19 PM, Cowboy0108 wrote:
It is considered negative, as an economic Nobel prize winners said "one person's spending is another's income" in other words, if a person saves money that is hurting another's current income.

Sure, but do not forget that an economy based solely on spending would not grow as quickly because credit would be so expensive that potential employers would not be able to create and expand a business. So yes, one's spending is another's income. But one's saving is another's job.

An economy would quickly adjust to a longer term approach.

Central planners that influence savers not to save in favor of current employment will have dreadful long term economic affects. Once savers have no more savings then encouraging debt becomes the central short term policy. That is a death spiral of short term central economic planning, and measurement methods.
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5/15/2015 5:23:14 AM
Posted: 1 year ago
At 5/14/2015 10:02:00 PM, Chang29 wrote:
At 5/14/2015 8:42:33 PM, ResponsiblyIrresponsible wrote:
At 5/14/2015 8:37:32 PM, Chang29 wrote:
Method of measurement effects results, managers will state things like "What gets measured, gets done". Since savings is negative in GDP calculations, those in charge of economic incentives and central economic controls with place incentives to discourage savings. Especially when those planners are only looking to a quarter to quarter rise in GDP.

But it's not negative. I just proved that to you mathematically. If they were looking to boost GDP, that is by definition boosting savings.

Conspiratorial nonsense aside, I agree with you that savings are important, and there are far too many policies that discourage it.

Central controllers of economic policy disagree with your assessment, they see savings as money that is not adding to GDP calculation. Not a conspiracy, the inventors were strait forward with their intentions of central economic controls, and savings reduces the effectiveness of the methods used to control economies.

I don't think that's what Simon Kuznets was thinking when he created national income accounts.


Money changing hands is important and will happen, people will always want more than they have. Savings and real wealth creation is how individuals build strength of their own economy. GDP calculations which treat actions that are good for long term individual wealth building as an collective economic growth negative, should be considered economist malpractice.

But it doesn't consider it negative. That just isn't true - the impact of savings on GDP is largely implicit (and reverse causation mostly) and over a longer period of time, though both of us agree that it's important - both for long-run growth, innovation, and resiliency to shocks. There is, for once, almost no disagreement.

It is considered negative, as an economic Nobel prize winners said "one person's spending is another's income" in other words, if a person saves money that is hurting another's current income.

He isn't wrong - total income equals total spending, but savings comes out of total income. For a dollar to be earned, and thus saved, it must be be spent - but the implication is that generally speaking it doesn't just "sit there." It's spent, either on acquiring foreign assets or on investment.
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Chang29
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5/15/2015 7:25:15 AM
Posted: 1 year ago
At 5/15/2015 5:23:14 AM, ResponsiblyIrresponsible wrote:
At 5/14/2015 10:02:00 PM, Chang29 wrote:
At 5/14/2015 8:42:33 PM, ResponsiblyIrresponsible wrote:
At 5/14/2015 8:37:32 PM, Chang29 wrote:
Method of measurement effects results, managers will state things like "What gets measured, gets done". Since savings is negative in GDP calculations, those in charge of economic incentives and central economic controls with place incentives to discourage savings. Especially when those planners are only looking to a quarter to quarter rise in GDP.

But it's not negative. I just proved that to you mathematically. If they were looking to boost GDP, that is by definition boosting savings.

Conspiratorial nonsense aside, I agree with you that savings are important, and there are far too many policies that discourage it.

Central controllers of economic policy disagree with your assessment, they see savings as money that is not adding to GDP calculation. Not a conspiracy, the inventors were strait forward with their intentions of central economic controls, and savings reduces the effectiveness of the methods used to control economies.

I don't think that's what Simon Kuznets was thinking when he created national income accounts.

If he did not understand that his measure would be used by government central planners to guide their economic policy making, would be another example of economist malpractice.



Money changing hands is important and will happen, people will always want more than they have. Savings and real wealth creation is how individuals build strength of their own economy. GDP calculations which treat actions that are good for long term individual wealth building as an collective economic growth negative, should be considered economist malpractice.

But it doesn't consider it negative. That just isn't true - the impact of savings on GDP is largely implicit (and reverse causation mostly) and over a longer period of time, though both of us agree that it's important - both for long-run growth, innovation, and resiliency to shocks. There is, for once, almost no disagreement.

It is considered negative, as an economic Nobel prize winners said "one person's spending is another's income" in other words, if a person saves money that is hurting another's current income.

He isn't wrong - total income equals total spending, but savings comes out of total income. For a dollar to be earned, and thus saved, it must be be spent - but the implication is that generally speaking it doesn't just "sit there." It's spent, either on acquiring foreign assets or on investment.

I understand the math, how and why it works. My point is that a system of measure effects the policies made. If a system of measure designed savings as a plus to an economy policy makers would incentify savings and there would be no "paradox" . The GDP measure is the paradox, not savings.
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5/15/2015 7:29:51 AM
Posted: 1 year ago
At 5/15/2015 7:25:15 AM, Chang29 wrote:
At 5/15/2015 5:23:14 AM, ResponsiblyIrresponsible wrote:
At 5/14/2015 10:02:00 PM, Chang29 wrote:
At 5/14/2015 8:42:33 PM, ResponsiblyIrresponsible wrote:
At 5/14/2015 8:37:32 PM, Chang29 wrote:
Method of measurement effects results, managers will state things like "What gets measured, gets done". Since savings is negative in GDP calculations, those in charge of economic incentives and central economic controls with place incentives to discourage savings. Especially when those planners are only looking to a quarter to quarter rise in GDP.

But it's not negative. I just proved that to you mathematically. If they were looking to boost GDP, that is by definition boosting savings.

Conspiratorial nonsense aside, I agree with you that savings are important, and there are far too many policies that discourage it.

Central controllers of economic policy disagree with your assessment, they see savings as money that is not adding to GDP calculation. Not a conspiracy, the inventors were strait forward with their intentions of central economic controls, and savings reduces the effectiveness of the methods used to control economies.

I don't think that's what Simon Kuznets was thinking when he created national income accounts.

If he did not understand that his measure would be used by government central planners to guide their economic policy making, would be another example of economist malpractice.

It was intended to track the degree and magnitude of downturns - it's impossible to deny that GDP (a measure of AD) is focal to understanding the Depression or the Great Recession. To say otherwise is just wildly stupid.



Money changing hands is important and will happen, people will always want more than they have. Savings and real wealth creation is how individuals build strength of their own economy. GDP calculations which treat actions that are good for long term individual wealth building as an collective economic growth negative, should be considered economist malpractice.

But it doesn't consider it negative. That just isn't true - the impact of savings on GDP is largely implicit (and reverse causation mostly) and over a longer period of time, though both of us agree that it's important - both for long-run growth, innovation, and resiliency to shocks. There is, for once, almost no disagreement.

It is considered negative, as an economic Nobel prize winners said "one person's spending is another's income" in other words, if a person saves money that is hurting another's current income.

He isn't wrong - total income equals total spending, but savings comes out of total income. For a dollar to be earned, and thus saved, it must be be spent - but the implication is that generally speaking it doesn't just "sit there." It's spent, either on acquiring foreign assets or on investment.

I understand the math, how and why it works.

I don't think you do, or otherwise you wouldn't say such stupid, patently false things.

My point is that a system of measure effects the policies made. If a system of measure designed savings as a plus to an economy policy makers would incentify savings and there would be no "paradox" . The GDP measure is the paradox, not savings.

You claim to understand it, and then made the same BS point.

First, you can't reason from a quantity change - no knowledgeable person will let you do that. When people say "boosting NX boosts the economy" - and NX is added to GDP - smart, knowledgeable people point out how utterly stupid reasoning from a quantity change is. Sumner just took down Dean Baker for that, actually - the point is that the mechanism to boost NX is expansionary monetary policy, but the income effect may outweigh the substitution effect, so NX falls but it's a net gain because people are buying more stuff.

Second, it is a plus - I just showed you, and you claimed to understand the math:

Y = C + S + T

is another way to write GDP

AND

S = I + NX

I and NX are added to GDP, and S is is equal to I + NX.

So, no, you're wrong on every front.
~ResponsiblyIrresponsible

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Chang29
Posts: 732
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5/15/2015 7:03:53 PM
Posted: 1 year ago
At 5/15/2015 7:29:51 AM, ResponsiblyIrresponsible wrote:
At 5/15/2015 7:25:15 AM, Chang29 wrote:
At 5/15/2015 5:23:14 AM, ResponsiblyIrresponsible wrote:
At 5/14/2015 10:02:00 PM, Chang29 wrote:
At 5/14/2015 8:42:33 PM, ResponsiblyIrresponsible wrote:
At 5/14/2015 8:37:32 PM, Chang29 wrote:
Method of measurement effects results, managers will state things like "What gets measured, gets done". Since savings is negative in GDP calculations, those in charge of economic incentives and central economic controls with place incentives to discourage savings. Especially when those planners are only looking to a quarter to quarter rise in GDP.

But it's not negative. I just proved that to you mathematically. If they were looking to boost GDP, that is by definition boosting savings.

Conspiratorial nonsense aside, I agree with you that savings are important, and there are far too many policies that discourage it.

Central controllers of economic policy disagree with your assessment, they see savings as money that is not adding to GDP calculation. Not a conspiracy, the inventors were strait forward with their intentions of central economic controls, and savings reduces the effectiveness of the methods used to control economies.

I don't think that's what Simon Kuznets was thinking when he created national income accounts.

If he did not understand that his measure would be used by government central planners to guide their economic policy making, would be another example of economist malpractice.

It was intended to track the degree and magnitude of downturns - it's impossible to deny that GDP (a measure of AD) is focal to understanding the Depression or the Great Recession. To say otherwise is just wildly stupid.



Money changing hands is important and will happen, people will always want more than they have. Savings and real wealth creation is how individuals build strength of their own economy. GDP calculations which treat actions that are good for long term individual wealth building as an collective economic growth negative, should be considered economist malpractice.

But it doesn't consider it negative. That just isn't true - the impact of savings on GDP is largely implicit (and reverse causation mostly) and over a longer period of time, though both of us agree that it's important - both for long-run growth, innovation, and resiliency to shocks. There is, for once, almost no disagreement.

It is considered negative, as an economic Nobel prize winners said "one person's spending is another's income" in other words, if a person saves money that is hurting another's current income.

He isn't wrong - total income equals total spending, but savings comes out of total income. For a dollar to be earned, and thus saved, it must be be spent - but the implication is that generally speaking it doesn't just "sit there." It's spent, either on acquiring foreign assets or on investment.

I understand the math, how and why it works.

I don't think you do, or otherwise you wouldn't say such stupid, patently false things.

My point is that a system of measure effects the policies made. If a system of measure designed savings as a plus to an economy policy makers would incentify savings and there would be no "paradox" . The GDP measure is the paradox, not savings.

You claim to understand it, and then made the same BS point.

First, you can't reason from a quantity change - no knowledgeable person will let you do that. When people say "boosting NX boosts the economy" - and NX is added to GDP - smart, knowledgeable people point out how utterly stupid reasoning from a quantity change is. Sumner just took down Dean Baker for that, actually - the point is that the mechanism to boost NX is expansionary monetary policy, but the income effect may outweigh the substitution effect, so NX falls but it's a net gain because people are buying more stuff.

Second, it is a plus - I just showed you, and you claimed to understand the math:

Y = C + S + T

is another way to write GDP

AND

S = I + NX

I and NX are added to GDP, and S is is equal to I + NX.

So, no, you're wrong on every front.

The developers and implements had the algebra right. Yet, GDP measurement remains the paradox, a useless measure for anything other than central planners to show the effects of policies, plan and simple. Policies to discourage personal savings for short term GDP gains have had terrible individual consequences.
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5/15/2015 7:08:28 PM
Posted: 1 year ago
At 5/15/2015 7:03:53 PM, Chang29 wrote:
The developers and implements had the algebra right.

Then you agree with me that your claim about savings being a "negative" is fundamentally wrong - and we even agreed earlier that savings are important to long-run growth. Heck, I've made several lengthy posts recently about the Solow model, lol.

Yet, GDP measurement remains the paradox, a useless measure for anything other than central planners to show the effects of policies, plan and simple.

Sigh...

In the eternal words of Ronald Reagan, "here you go" again.

It is extremely important, because NGDP is heavily correlated with wages, with employment, with standards of living - and that directly impacts household's decisions. There are problems with it - imputed values, the fact that "economists don't know how to subtract," and even income and wealth dispersions that render per capita measures a horrid measure of living standards - but they're far eclipsed by the benefits. GDP has its limitations, which is why we look at other indicators. It isn't a be-all, end-all, nor should it be, but total income is a great way to start.

Policies to discourage personal savings for short term GDP gains have had terrible individual consequences.

No, these aren't mutually inclusive - you don't need to discourage savings to boost GDP. Not to mention, increasing GDP boosts the total size of the pie which *increases* savings. I showed you the math earlier.

GDP - C - G = S

I don't understand how many more ways I need to say this.. if GDP rises, savings almost invariably rise as well.
~ResponsiblyIrresponsible

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Chang29
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5/15/2015 8:05:59 PM
Posted: 1 year ago
At 5/15/2015 7:08:28 PM, ResponsiblyIrresponsible wrote:
At 5/15/2015 7:03:53 PM, Chang29 wrote:
The developers and implements had the algebra right.

Then you agree with me that your claim about savings being a "negative" is fundamentally wrong - and we even agreed earlier that savings are important to long-run growth. Heck, I've made several lengthy posts recently about the Solow model, lol.

Yet, GDP measurement remains the paradox, a useless measure for anything other than central planners to show the effects of policies, plan and simple.

Sigh...

In the eternal words of Ronald Reagan, "here you go" again.

It is extremely important, because NGDP is heavily correlated with wages, with employment, with standards of living - and that directly impacts household's decisions. There are problems with it - imputed values, the fact that "economists don't know how to subtract," and even income and wealth dispersions that render per capita measures a horrid measure of living standards - but they're far eclipsed by the benefits. GDP has its limitations, which is why we look at other indicators. It isn't a be-all, end-all, nor should it be, but total income is a great way to start.

Policies to discourage personal savings for short term GDP gains have had terrible individual consequences.

No, these aren't mutually inclusive - you don't need to discourage savings to boost GDP. Not to mention, increasing GDP boosts the total size of the pie which *increases* savings. I showed you the math earlier.

GDP - C - G = S

I don't understand how many more ways I need to say this.. if GDP rises, savings almost invariably rise as well.

The math works, the constructors did a great job at creating a useless mathematically correct measure.

The construction of GDP measure is the problem. it is a useless measurement outside of government, and those that attempt to predict actions of central planners.
A free market anti-capitalist

If it can be de-centralized, it will be de-centralized.