I think we misunderstood each other. When I said people can save (spend less than than their income) only when others spend more than their income, I meant that spending and income, for the economy as a whole, are always the same.
I thought you were trying to provide a counter-example, but that seems to be your point too. (“In every time period, there is income of 600 and spending of 600.”)
I agree; not just in your example, but in every example. Spending and income are always the same.
So talk of encouraging people to save (in the sense of spending less than their income) as a way of building wealth, is pure foolishness. No amount of not-spending ever creates wealth. The only way to create wealth is to build or create things that either last a long time, or create or promote efficiency. (Which generally involves spending money, not not-spending it.)
So, for example, those who suggest that we - meaning the nation as a whole - need to attempt to “save” money for some future calamity (say, the retirement of the baby-boomers) instead of spending it on things like schools or infrastructure or new technologies, are advocating for something that is actually exactly the opposite of what we should be doing.
Furthermore, those who argue that the private sector needs to “save” (spend less than its income), and that the public sector needs to be doing the same thing (by, for example, paying down the national debt), are advocating for something that’s impossible.
I think you’d agree with all that. The difference being that you’d use the word “save” to mean “spending on things that last a long time, or improve efficiency,” rather than “not-spending”. The problem is that the people who say the private sector and the public sector should both be “saving” (“tightening their belts”) are not using the word “save” the way you say it should be used.
If this thread keeps going at this rate, it’ll turn into an intermediate macro textbook.
I don’t know any definition of money that would include normal bank loans on the balance sheet. The loan asset is extremely different from the deposit liability.
Trying to refer to debt there. You used a debt example, and my counter-example was to demonstrate that debt is not strictly necessary to the process. There is also equity.
Foolishness if you take it literally.
Which you don’t have to do.
If you go around telling people their definitions are foolishly wrong, that they don’t know what they’re talking about, that their own knowledge doesn’t apply… they will not listen to you. Justifiably. Their micro definitions are correct for their own personal situations, which means they have the full force of their intuition and personal experience up against a brash critic who is, effectively, telling them they’re idiots.
Any explanation you offer needs to work up from their intuitions rather than summarily dismissing them.
The fact of the matter is that if they actually do succeed in consuming less than their income, then they will end up saving, both in my favored macro sense and their own individual situations. That’s just a little change to get them on the right track, from spending in general to spending on specific types of consumer goods. Although it’s impossible for income and spending to be different for the economy as a whole, it is fully possible for income and consumption to be different.
It just takes a nudge sometimes.
Lots of what people say about total spending and the government budget is nonsense.
Sometimes what I personally say about total spending and the government budget is nonsense.
The first step, for me anyway, is to try to establish a common language. If I can be sure we’re both using the same definitions, then we can go from there. In that case, it isn’t necessarily a matter of me telling people they’re wrong (though I do plenty of that when I feel it’s necessary), as much as it is a collaboration, as we learn together to adopt the same vocabulary to convey meaning more easily. I’m happy to be immediately dismissive of, say, gold-worshippers who have read less real Austrian economics than I have, but if I think there is some chance of finding common ground, I generally think it’s worthwhile to try that before saying things that will obviously be considered insulting by the other party.
I really really wish there were a single set of magic words that we could use in all these discussions to make everything clear. There isn’t.
That means every single conversation on this topic is in essence a negotiation, as we struggle to find some common meaning sensible to everyone. And if we approach a delicate negotiation like this with a hardline stance, it will inevitably break down. I’ve seen intelligent people who seem to agree on 95% of issues throw little jabs at each other because of small differences in vocabulary. I flatter myself that I am slightly better than average at reaching across these gaps, and the reason for that is that I deliberately seek to read different schools of thought and talk with people with different vocabularies, so that I’m slightly more familiar with the normal ways that communication tends to fail.
You’re right that there are some major misconceptions about money movement on a macro scale. But it still pays to be careful when discussing them, because many of those misconceptions are directly based on legitimate personal experience. The best approach, in my estimation, is to acknowledge the validity of that personal experience even as we try to navigate our way to more sophisticated definitions.
I’m not always very good at this, but it is always worth the effort.
No, I know loan assets aren’t money. I was just saying that bank-created money creates new demand for money at the time it creates the supply. Somebody has a debt that has to be paid off. That’s different from commodity-money, because a newly-minted gold coin is an asset without a corresponding liability.
I agree: corporate equity is savings in the non-corporate sector, as is corporate debt. Stocks are assets to the owners of companies, and liabilities to the corporations that issue them.
I’d argue that macro-level policy choices that are informed by micro-level logic result in counter-productive policies. One example is austerity programs that are a response to an economic slowdown, which in fact make the problem worse instead of better.
I’m not really trying to convince anybody. I’m trying to figure it out. It does seem like a correct understanding of economies ought to be valuable. Like, say, a correct understanding of how to pick stocks, or predict interest rates, or build an airplane. If it can be demonstrated to be right (have value) people will want to know. They won’t have to be convinced.