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Thursday, August 04, 2005

The Paradox of Thrift II

Samuel Brittan of The Financial Times echoes the theme of "The Paradox of Thrift" in his discussion of attempts by governments to increase saving:

Myth of national savings drives, By Samuel Brittan, Financial Times (subscription):  … Today I want to tackle the myth of national savings … we have been besieged with exhortations to save more. ... The excuse ... is the supposed need to increase physical investment. Even if we accept this “need”, the case for savings drives is not made. Between the world wars Lord Keynes pointed out that an excessive attempt to save could bring about a slump. ...  In today’s globalised economy there is another critique of savings drives. It is simply that a country’s investment is not limited by domestic savings ... There is … a fundamental worldwide “ex-ante” savings surplus. … In the present world conjuncture the last thing we need is for the US to start saving much more ... This would simply add to the very high Asian levels of savings and the moderately high continental European levels. It could then be difficult for real interest rates to fall enough to accommodate such a surge in world savings...

I want to add one note from the post linked above.  This does not rule out attempts to increase saving as a means of increasing economic security, e.g. for retirement saving, or as a means of solving potential market failure problems in these markets.  Those are separate issues.

    Posted by on Thursday, August 4, 2005 at 04:14 PM in Economics, Saving | Permalink  TrackBack (0)  Comments (4)


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