- #36
brainstorm
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Dickfore said:
I think saving that equation refers specifically to currency used to purchase deposits, which are subsequently lent out to borrowers. In that sense, savings is directly converted into stimulus spending.
Structural modifications that create savings are different, though, in that expenditures are reduced instead of stimulated by saving/lending (investment). E.g. say a factory that produces electrical wire finds a copper-vein in back of the factory. If it stops buying copper from its supplier, it saves money on inputs. Yet, the savings might not be re-invested in anything except bonuses or lowering the price of its products. Still, those bonuses or consumer-savings would be a form of direct investment in the people reaping the benefit.
Take another example in which a company lays off workers and uses the savings to increase share-dividends or the wages of other employees. In that case, that money gets "invested" by increasing the purchasing power of the people receiving it. They might waste the money on drugs, sex, and rock&roll but aren't those forms of fiscal stimulus? What if they save it bank deposits? Don't those deposits get lent out as mortgages, etc.? The only way the savings would not trickle-down, I think, is if it is getting put into enterprises that lure people away from efficient uses of resources, which is actually what most of the economy does, imo. Still, inefficiency drives GDP by inducing more spending per unit utility, so irrationality can increase together with profit, though this can still ultimately have recession-intensifying effects.