There is an interesting discussion at the Cafe Hayek blog about how much it matters that Americans don’t currently save very much. Well, given that real interest rates (taking into account inflation) are negative, and that holding cash means real wealth declines, it is not surprising that real savings have been steadily eroded. The blog’s author is certainly right about this point, however:
“If saving is good for Americans, the nationality or place of residence of the savers whose saved resources are invested in the American economy is irrelevant. If saving is good for Americans, then given Americans’ saving rate, savings invested in the American economy by non-Americans are a blessing – a blessing that is bigger the greater is the amount of this foreign savings and investment in the American economy.”
“Yes, we Americans would be even wealthier materially if we Americans saved even more – wealthier materially both as a product of many or all of us having larger financial portfolios, and as a product of the economy of which we are a part having an even greater volume of total output. But for this very reason we Americans are made wealthier also when foreigners save more and invest their savings here, regardless of how much or how little Americans save and invest.”
Of course if I can nit-pick, I would make the point that when, say, Chinese investors bought oodles of US government bonds in the years leading up to the credit crunch of 2008, it helped drive US long-term interest rates even lower, hence encouraging even more US domestic consumer spending and borrowing, a process we know went horribly wrong. (The main culprit in all this was the Federal Reserve, not China, I should point out). Of course, if non-domestic savers are channeling those savings into investments that yield a positive future return, such as investments in technological innovations, new products and services, then that’s all to the good.
If we were to move away from fiat money to a commodity-based monetary system and 100 per cent reserve banking for demand deposits, then a savings culture would be encouraged considerably. At present, persuading people to save is understandably hard because people, even if they are not hard-money zealots like me, smell that there is something rotten with our money.
In some ways, I see parallels between the loss of faith in paper money and the declining credibility of the AGW crowd. I think it was Brian Micklethwait of this blog who said something along the lines that we have had junk science, and now junk money. There is only so much junk that human civilization can stand.