Deferred Consumption

I recently subscribed to a number of podcasts in an effort to drown out the unbearable background noise in the Fishkill office: Fox News. One of them was a program from WNYC and Public Radio International, The Takeaway. They’re running a series on debt. On November 17th (podcast, November 21, but hey) they interviewed Ronald Wilcox on the why Americans don’t save, and how we got to this predicament. The general explanation is that we’re optimists, and optimists, because they think tomorrow will be better, tend to live for today.

Savings is a somewhat interesting topic currently because we’re on the downturn of an business cycle because of a collapse in aggregate spending (because the cheap money has become more dear). So there was some discussion in the interview of whether or not saving helps or harms the economy. It was granted that in the short-term saving hurts, while in the long-term saving helps. That is, saving, or deferred consumption, reduces aggregate demand and thus causes an excess of supply, an excess of labor, and contraction in industry as workers are laid-off and factories closed in order to remove the excess, thus causing a decrease in aggregate demand which causes …. and so on.

Today there’s a story on a reduction in the amount of debt we hold: Saving Too Much (for once)?

(The take-away? The Takeaway needs transcripts.)

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