What is not said is that the long-term growth of savings is central to the process by which we arrive at those abnormal times.
15 November 2011
I got numbers for M1 and M2 money from the Historical Statistics (Bicentennial Edition) and from FRED. The HS numbers cover the years 1915 to 1970. The FRED numbers cover 1959-2010. Some overlap. Annual numbers.
M1 is circulating money. M2 is circulating money plus money in savings. (M2-M1) is money in savings. I did a graph of (M2-M1) relative to GDP:
| Graph #1 |
Big discrepancy between the old numbers and the new. I didn't look for a reason. No matter the reason, that discrepancy is disturbing. But I figure, there may be different standards of measurement for the two number sets, but there must be internal consistency within each set. I put the numbers on two different graphs.
The Early Years:
| Graph #2 |
Accumulated savings bottomed out in 1918, relative to GDP, then rose despite everything until 1932. Then downtrend to 1943, interrupted only in 1938 by the recession-within-depression. Then, after a war-related hump that ends in 1951, a general increase in savings until 1968.
That 1951-68 increase corresponds quite well to the famous golden age of post-war capitalism.
The Recent Years:
| Graph #3 |
Graph #3 shows the latter part of the strong increase in savings that accompanied the golden age. This graph shows the uptrend ending a bit earlier, in the mid-1960s. Savings then runs roughly horizontal until 1991, when it drops until 1995. In the "macroeconomic miracle" years after 1995, savings again increased rapidly. Savings continued to increase even after the miracle ended.
These graphs show that Savings-per-GDP increased
• during the Roaring '20s
• during the Great Depression
• during the golden age
• during the macroeconomic miracle years following 1995.
Savings increases when the economy is doing well (and also when GDP collapses).
Savings growth stagnated from the mid-1960s to 1991, and then actually fell. Stagnant savings growth corresponds to stagnant economic growth.
Savings growth declined during the FDR years that preceded the golden age; during the early 1990s before the macroeconomic miracle; and savings is in decline at present. Savings decline is a necessary prerequisite for the savings increase that accompanies growth.
So much should be obvious. In addition, the growth of accumulated savings is part of the monetary imbalance that causes Depressions and stagnations and financial crises like ours.
The economy's response to accumulated savings is essentially identical to its response to the excessive accumulation of debt. The long-term growth of savings is central to the process by which we arrive at abnormal times.
2 comments:
Savings decline is a necessary prerequisite for the savings increase that accompanies growth.
You are drawing a broad - in fact, universal - conclusion from two events: the Great Depression, which is unique in the last century plus, and the early 90's which was a much shallower decline.
Along the way, you are ignoring everything else that influences growth: fiscal policy, monetary policy (except by implication and possible second order effects), and trade balance spring readily to mind.
and savings is in decline at present.
What you have is a blip on a chart. It might not mean anything more than the blips of 1983 or 2003.
Cheers!
JzB
Jazz, forgive my long delay in responding.
You are drawing a broad - in fact, universal - conclusion from two events
From two events? Not at all. I show a variety of events, each occurring at least twice. I show the ratio high. I show it low. I show it rising. I show it falling.
I show it for a period of 95 years, from 1915 to 2010. In all that time, we see that a high and rising ratio leads to (or precedes) depression, and that a significantly falling ratio, when it turns, brings vigor to the economy.
You can call it "two events" because the events are recognizable moments in a long financial cycle. With a cycle length of 80 years or so, it is just dumb luck that we even see two of them in a 95-year period. But there is far more to what I am showing than just "two events".
Anyway, if you count the decline that began around 2009, that's three events.
Along the way, you are ignoring everything else that influences growth
I wrote: Accumulated savings bottomed out in 1918, relative to GDP, then rose despite everything until 1932.
"despite everything"
That does not mean I am ignoring everything else. It means nothing else made any difference.
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