Scott Sumner Becomes Even More Shrill

      In a new post today he doubles down in his idiosyncratic definition of saving. The title of the post says it all, "Saving isn't "setting money aside" it's BUILDING CAPITAL GOODS"

       http://www.themoneyillusion.com/?p=12617#comments

        There seems to be a strange disconnect with him where he keeps claiming that anyone he questions this very questionable claim somehow denies the accounting identity of equilibrium where Savings=Investment.

         "People, I beg you to just stop.  All the textbooks say S=I, so I thought people accepted this.  I guess they don’t."

          See that's the disconnect. No one is arguing that. But just because S is in equilibrium with I in an accounting sense doesn't mean that savings and investment are the same thing(why have two words then)?

          He then gives his definition of savings:

          "We are interested in national income and output, not individual accounts.  Yes, an individual can save without any change in national investment.  You might buy a stock or bond.  But in that case someone sold you the stock or bond, so they dis-saved exactly what you saved.  THE ACT OF SETTING ASIDE MONEY HAS NOTHING TO DO WITH SAVING.  SAVING IS BUILDING CAPITAL GOODS."

          "Let’s consider three types of goods; food, cars and houses.  The government considers food and cars to be consumer goods, and houses to be capital goods.  In fact all goods could be viewed as capital goods, albeit goods that depreciate at vastly different rates.  Since the GDP data is annual, we might want to consider goods to be “capital” if they lasted more than a year.  So cars and houses ought to be capital, but I believe the government views cars and home appliances as consumer goods, perhaps because they are too lazy to do all the calculations for depreciation."

         W hen I argue with this strange definition of savings he answers me this way:

          "Mike Sax, Krugman says S=I by definition, so does Mankiw. I suppose they aren’t Keynesians then?"

          You see what I mean? I called this post "Scott Sumner Becomes Even More Shrill"as for his sake I didn't want to suggest "Scott Sumner Jumps the Shark" but this seems pretty willfully obtuse at this point.

          His own Market Monetarists seem pretty confounded as to what Sumner is arguing here too. David Glasner over at Easy Money butters him up a lot but then gets down to business:

         "Scott, where is savings “defined as the resources put into investment projects?”  Savings is not identically equal to investment, the equality of savings and investment is an equilibrium condition. Savings is defined as that portion of income not consumed. Investment is that portion of expenditure not consumed. Income and expenditure are not identically equal to each other; they are equal in equilibrium. "

          http://uneasymoney.com/2012/01/11/scott-sumner-goes-too-far/#comment-3604

         Bill Woolsley in the comment section says this at Money Illusion says this:

         “I don’t agree at all.”

        “Saving is that part of income not spent on consumer goods.”

        “Investment is spending on capital goods.”

         Nick Rowe on the other hand frets that maybe we should just give up the word savings all together as it just leads to confusion.

          "Because it's the most confusing concept in macroeconomics."

          http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/01/why-saving-should-be-banned.html#more

          It certainly is when Scott Sumner starts talking about it.