Friday, July 13, 2012


The unemployment will continue until spending increases.


The Myth of the Morality of Saving

Actually, there are many angles on this.  For example, in an efficient market, saving only benefits the saver.

But I think at bottom in most people's thinking there is this idea of conserving, of saving in the truest sense.  Conserving might be not opening that extra packet of sugar today, or using less energy by turning off the lights when leaving a room.  Such conserving, or not using, makes things available for oneself and/or others in the future.

OK, now, compare this with the choice you make when you choose to spend or not spend.  What is the impact?

Spending does not necessarily increase the consumption of natural resources over time.  There are many ways in which spending today could either have negligible effect on resources, or even a positive benefit over time.  That is determined by what one is spending on.  And there are many other beneficial aspects that spending can have, such as on education.

Since it could be one way or the other, I think it's useful to consider what happens if spending has absolutely no direct impact on natural resources, merely a very small effect (such as spending on somthing like music or art), or, best of all, a positive impact on society.  In any of these cases, spending also increases the level of income in the entire society.  Most people would consider that a good thing.  Along with the level of income, the level of employment increases, the level of poverty decreases, etc.

What does, in this case, not spending do?  Not spending simply does nothing.  So if there is a positive benefit to society from a certain spending, and it is NOT done, that is an opportunity lost.

Seems to me the more moral thing to do is to spend as much as possible on things having negligible or positive impact on natural resources over time.

Not spending is less moral.

The only case where this might not be true is if the not-spending for today itself has some moral purpose in the expectation of moral spending tomorrow.  So, and so far as I know this is a standard view even among economists, the function of saving SHOULD be to enable future consumption, because that is how they understand utility.

However, in the real world, people get utility from things like status, and they can feel security from a stockpile, like a collection of bottled water or soup.

If there is risk, it may not be a bad idea to have some kind of stockpile.  If there is risk of not having enough money, a stockpile of money might be a good idea.  But one should see this as a personal hedge, not something of overall benefit to society.  If it were a stockpile of canned goods, over time they would go bad, representing a waste of natural resources.  In a relative sense, unnecessary saving does that also.  It is a net loss to the possible utility achievable by society.

But the accumulation of not-spending merely for the purpose of self aggrandizement?  That is immoral because all of that not-spending takes away from the potential income in the rest of society.

So it is liess moral not to spend, at least on particular kinds of spending described above, unless one has a reason not to based on future consumption needs or reasonable risk expectations.

This seems to be the reverse of how most people think of this.

 What about saving defined as putting money in a savings institution?  Generally, as far as making investment possible, etc., this actually has negligible effect on anything.  If, for example, a bank needed more reserves it could borrow them.  Banks can operate just fine without deposits.  Your deposit slightly reduces the cost of money to a bank, that is all.  That usually means that now the bank can have slightly higher profit.  It is that extra profit, plus all the money the bank pays its employees, that represent the benefit to society from your deposit.

That is actually a very small amount of extra income in the rest of society compared to just spending the money all right now.  The only possibility of a greater benefit to society is if you leave your money in the bank for a very long time, long enough that the extra profit exceeds the amount of your deposit.  I suspect that would take decades.

And along with that, there is an additional issue regarding who gets the money you are spending.  If you are paying a musician, for example, you may be paying someone with lower income than the beneficiaries of higher profits (and employee spending) in a bank.  So your spending may have more positive distributional effects, as well as higher multiplier effects.

So once again, the more moral choice is to spend rather than to put money in a saving institution even.  And you can imagine the same reasoning, pretty much, applies to other financial instruments.  I believe it does, or moreso.

A very differerent kind of investment isn't making a claim on a future revenue stream, but directly spending money on some future productive capacity.  The most common way people do that is by spending on eductation.  That kind of spending is real and undeniably virtuous, but only clearcut as being investment or spending in the certain cases.  A similar thing would be spending more money on a replacement furnace to get one that is more efficient.  People do these things, most often thinking of them more as spending than investment, and the payback may be uncertain.

Is there something you can do that is even more moral than spending?  Certainly it would seem to me, one raised as a Christian, that the answer would be giving.  Cast your bread upon the water, Jesus commanded.  (That did not mean you should cast your bread in exchange for gold, or AAA securities.)  And it is, with one qualification.

When for example you are spending for the time of a musician, you are getting something.  That something could be a benefit to someone else if your money were a gift.  The musician could correspondingly give his time to some honorable cause, or he could make more money.  Thus, more income.  Thus when you give, you are creating more potential income than when you spend.

The exception would be if whatever personal resource the musician does not use for you, is NOT used by anyone else either, and of no particular use to the musician either (say for example, if he doesn't need more unclaimed time for rest, or doesn't need it much).  Quite often musicians gain non-materially from performing, so not performing for you may be a loss to them as well as a loss for you.

So sometimes a gift is best (overall for society) returned as a favor, and sometimes not.  But in a world with limited personal resources, not to mention natural resources, it would follow that the gift is nearly always the best overall for society.

So Jesus was right.  Social welfare is maximized the most by giving without any demand or expectation of return.


Part of the problem here is that people often think of money (or other wealth) as a resource.  It is not a resource.  It is a claim on resources.  One's having it takes away from others.  Best put in motion, therefore, and the faster away from oneself the better.

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