Monday, May 13, 2013

Saving Services

An old macro-economic canard is that you cannot save on a societal scale.  That one person's saving must be another person's borrowing.  That production and consumption must ultimately balance.  However, the creation of capital goods clearly falsifies this assertion as, for example, building a more efficient power plant doesn't just uses present resources to provide for current consumption, but also causes increased consumption in the future.  Thus, investment allows consumption to be moved into the future, which is pretty much the definition of saving.  And there's no reason that a society need to consume its investment as rapidly as it invests.

What's old is new again, so the argument is reborn as "retirees consume mostly services, and you can't save services."  If you go back to my theory that economic growth is fueled by substitution, the problem is that services are expensive.  What can you substitute for services?  Goods.  If we can provide many of these services with computers, robots, or whatever else may appear on the horizon, then the economy can continue to grow with cheap goods replacing expensive services.  Since a society can "save" goods by investing in productive capacity, we can save to meet the needs of the future elderly by investing and innovating now.


Blogger Yoel Natan said...

To use more familiar terms, instead of "savings," one could substitute the term capital investment.

Probably robots will be providing services to the elderly and handicapped that people and service dogs do now. That's an example of investment in innovation to make services cheaper in the future.

Limiting the number of elderly within a country's borders is important, too. The US is planning to spend $6 billion per year on drones and border security, which is a bargain when one considers that illegal immigrants cost the system $2.5 trillion in govt services during their lifetimes.

With 1% owning 50% of the stock market and 40% of everything worth owning, a major problem is investment for the sake of rent seeking, aka monopolizing a niche market, and not innovating or creating new wealth. This perpetuates and extends the wealth divide. The only way to roll this back is through higher taxes on the wealthy, allowing more players in the field of innovation. A big example of of this happening was the 1980s after taxes were axed. Immediately there were a great number of corporate mergers and downsizings and closings of factories. The financial markets then took off in the two countries that lowered taxes, the US and UK. A large financial market and shrinking manufacturing base is an example of rent-seeking on steriods, and serves only to move manufacturing abroad and induces boom and bust cycles into the world economy.

2:29 PM  

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