I don't mean to refer to this young man as merely Mile's student-part of the trouble is he has such a long name: Enkhjargal Lkhagvajav. I'm really impressed though. Kimball posted an essay by him that really knocks down a zombie argument we're always hearing on savings from Neoclassicals like Sumner.
Reading him gives one hope for the new generation. It's also a good sign that there has been so much talk about inequality lately even from conservatives in order to knock it down-Sumner's argument is that we aren't allowed to discuss inequality in America before we solve it in the world first-which we can do by passing more free trade agreements.
We often hear the claim that excess savings can't be the problem during this recession as there hasn't be excess savings. The rate is down we're always hearing.Yet EL-forgive the abbreviation, it was hard enough for me to write his name once- points out that the way this is done is faulty as the comparison isn't apples to apples.
"John Taylor is correct on that the saving rate has been averaging 5.4% since the end of the latest recession. However, when he tried to compare this rate to the 8.4% average rate since the 1960, he makes wrong comparison. Due to the general downward trend of this rate over the last decades, he shouldn’t compare this 5.4% average rate of saving during the recovery to the all time average saving rate. But if we compare the 5.4% average rate during the recovery with the average saving rate between the end of 2001 and the start of the recession, which is 3.9%, we can see that the saving rate today is higher than its pre-recession level. Therefore, we have just disproved his claim by using the same argument he tried to use. In other words, with data on how the income inequality has grown, we have further see that the saving rate also increased after the recession."
http://blog.supplysideliberal.com/post/75971169766/enkhjargal-lkhagvajav-john-taylor-is-wrong-inequality#disqus_thread
So, yes the savings rate is up during since the recession. Speaking of savings and inequality, one of Nick Rowe's fellow bloggers over at Worthwhile Canadian Initiative also has a piece on the subject.
“It is generally recognized that more saving takes place in communities in which the distribution of wealth is uneven than in those in which it approaches more closely to modern conceptions of what is just.” T.S. Ashton (1948) The Industrial Revolution 1760-1830, p. 7.
Reading him gives one hope for the new generation. It's also a good sign that there has been so much talk about inequality lately even from conservatives in order to knock it down-Sumner's argument is that we aren't allowed to discuss inequality in America before we solve it in the world first-which we can do by passing more free trade agreements.
We often hear the claim that excess savings can't be the problem during this recession as there hasn't be excess savings. The rate is down we're always hearing.Yet EL-forgive the abbreviation, it was hard enough for me to write his name once- points out that the way this is done is faulty as the comparison isn't apples to apples.
"John Taylor is correct on that the saving rate has been averaging 5.4% since the end of the latest recession. However, when he tried to compare this rate to the 8.4% average rate since the 1960, he makes wrong comparison. Due to the general downward trend of this rate over the last decades, he shouldn’t compare this 5.4% average rate of saving during the recovery to the all time average saving rate. But if we compare the 5.4% average rate during the recovery with the average saving rate between the end of 2001 and the start of the recession, which is 3.9%, we can see that the saving rate today is higher than its pre-recession level. Therefore, we have just disproved his claim by using the same argument he tried to use. In other words, with data on how the income inequality has grown, we have further see that the saving rate also increased after the recession."
http://blog.supplysideliberal.com/post/75971169766/enkhjargal-lkhagvajav-john-taylor-is-wrong-inequality#disqus_thread
So, yes the savings rate is up during since the recession. Speaking of savings and inequality, one of Nick Rowe's fellow bloggers over at Worthwhile Canadian Initiative also has a piece on the subject.
“It is generally recognized that more saving takes place in communities in which the distribution of wealth is uneven than in those in which it approaches more closely to modern conceptions of what is just.” T.S. Ashton (1948) The Industrial Revolution 1760-1830, p. 7.
"I came across this quote while reading Ashton’s account of the industrial revolution and was taken by this sweeping assertion especially in light of current public debate such as Obama’s State of the Union pledge to tackle inequality as well as research on economic inequality and how it is harming economic growth. If new investment and capital formation is a function of saving, then if inequality fosters greater saving, it should also play some role in fostering investment and economic growth."
Of course, Keynesians don't agree that savings means more investment and more growth necessarily. They don't see a simple cause coming from savings to the effect of higher investment. To the contrary more savings can be associated with less consumption and so lower investment.
"So, yes the savings rate is up during since the recession. Speaking of savings and inequality, one of Nick Rowe's fellow bloggers over at Worthwhile Canadian Initiative also has a piece on the subject."
ReplyDeleteStephen Gordon:
"...but greater income inequality does not appear to be very strongly related to savings rates."
In the largest, and by most accounts, best study to date on this question, by Schmidt-Hebbel and Serven (2000), involving World Bank data on 82 countries over 1965-1994, they generally found no significant correlation between measures of income inequality and aggregate savings.
The lone exception was in a regression that used the income share ratio of top 20% to bottom 40%. The correlation was significant at the 5% level, but was negative. In other words, it suggested that greater inequality resulted in lower aggregate savings.
http://darp.lse.ac.uk/papersdb/Schmidt-Serven_(JDE2000).pdf
In fact, Frances Coppola uses this very study to argue against the Laffer Curve and in favor of progressive income taxation:
http://coppolacomment.blogspot.com/2014/02/laffer-and-loch-ness-monster.html