IT SEEMS hard these days to find anyone who has a good word for savings, or savers. There has been talk of a global "savings glut" for a decade now, and Ben Bernanke, one of the original proponents, still sees the concept as a "useful perspective" for understanding current economic conditions. Part of the idea of near-zero interest rates in the developed world is to discourage saving and to encourage borrowing. The perceived problem is that money saved is not money spent and thus the effect of saving is to reduce aggregate demand; by keeping a dollar in your pocket, you deprive a neighbour of employment. This is the "paradox of thrift"; if everyone tries to save too much, the economy will contract and the average person will be poorer, not richer.
This argument is extended to governments pursuing austerity policies, aiming to borrow less (or aim for an eventual surplus). To the extent that governments tax more on spend less, that will subtract demand from the economy; individuals and companies will have less money to spend. Again, the effect may be to slow the economy, causing tax receipts to be lower (and social benefits higher) than the government expects; the deficit...Continue reading
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