The Desire to Save

Take another look at at what Winterspeak said, from mine of the 15th:

The desire for the non-govt sector to save changes. It is the exogenous variable.

The "desire to save" changes. The most interesting thing about this is how often we hear about the desire to save, from MMT people who seem to treat it as sacrosanct.

Here's Bill, from the Billy Blog, from the 12th:

...the government can try to reduce its deficit by cutting net spending [but] if this runs, for example, against the desires of the private domestic sector to increase their saving ratio ... then the government’s aspirations will be thwarted.

And here's Tschäff, from a comment back in November:

We can say that given the savings desires of the world for dollars, there aren't enough dollars to satisfy that desire without causing people to cut back on their spending...

Three quotes, just off the top of my head. Tschäff sees savings desires as a given. Billy says the success of government deficit reduction depends on private-sector saving patterns. Winterspeak says saving desires are an "exogenous variable" -- they are a given, and they change.


The "desire to save" is not "exogenous." It is not a given. The desire to save is influenced by economic conditions and therefore is a consequence of economic policy.

As economic conditions worsen, the desire for economic security grows. Those who can afford to increase their saving, do. As for the rest of us, our "desire" to save increases as well, though our ability to save may not.

All right, so maybe making economic conditions worse isn't really one of the goals of policy. Conditions are still the consequence of policy. And that means policy is responsible for the growth of savings.

This graph is my look at savings. The trend line shows how much money we have in savings, compared to the money we have for spending. When the trend line goes up, savings is increasing faster than spending-money. When the line goes down, spending-money is increasing faster.

The graph shows savings growing faster from 1915 to the Great Depression... spending-money growing faster from the end of the Great Depression to the end of World War II... and savings growing faster after the war.

This graph is based on numbers from the 1975 "Bicentennial Edition" of the Historical Statistics. Somewhere among my Lost Papers, there is a hand-drawn version of this graph, from the late '70s or early '80s. Since that time I have understood that the uptrend leads to Depression, the downtrend accompanies recovery, and the uptrend accompanies growth -- but then leads again to economic troubles.

By 1977, when I took macro, the economy was already in trouble.

Our so-called "golden age" -- 1947 to 1973 -- occupies the post-war uptrend shown on the graph. But by the last years shown, you can see the uptrend tapering off just as it did during the Depression. We squeezed out only a few more good years before that golden age ended.

After that, economic growth wasn't so good anymore. That's when the Laffer Curve, the Two-Santa-Claus Theory, and supply-side economics, and Reaganomics arose, and lots of other trendlines started changing.


Among the changes intended to boost growth was the 401(k) savings plan created in 1978. In later years we find:

• Ex-adviser: Economy Strong Despite Reagan (1985)
• Bush Offers Proposals to Encourage Saving (1991)
• USE TAX LAWS TO ENCOURAGE SAVING (1994)
• Tax Cuts That Encourage Saving (2004)
• Obama announces plan to encourage saving (2009)
and -- as if it was a new idea --
• Leaders should encourage saving (2010)

...among other policies and proposals designed to encourage saving. Every such policy that is put into place, of course, is good not only for savers but also for the economy itself, because it makes credit available for growth.

...or, it is generally thought to be good for the economy.

The MMT guys I quoted above would probably say the saving was not necessary, because banks can create loans without it. Doesn't matter. Policies were put in place. Saving was enhanced.

This graph is an update of the savings graph above. The blue trendline way down low shows the same data as the graph above. The red trendline is newer data.

There is a significant mismatch in the numbers, so the red and blue lines don't line up. But the red line definitely continues and extends the uptrend that began after World War II.

I made this graph an odd shape to give the old, blue line the same shape it has in the graph above. So you can see that saving increased a lot after the golden age ended in 1973.

Was all of this increase in savings -- an astonishing increase, really -- the result of policy encouraging people to save? Not likely. The increase was the result of direct policy actions like the 401(k) and indirect policy effects like the increased desire for economic security arising in response to a less-than-golden economic performance.


The point of all this is that the desire to save is not a "given." It is a response to policy and to economic conditions which are themselves a response to policy.

Mostly, a response to bad policy.

There is no reason to pretend that the desire to save is sacrosanct. I don't know why MMT people engage in such pretense.