- Joined
- Jun 3, 2009
- Messages
- 30,870
- Reaction score
- 4,246
- Gender
- Male
- Political Leaning
- Very Conservative
Saving is good for the individual, but not for the economy as a whole.
People try to save more and therefore they spend less. Investment in the economy decreases.
This would not be a problem if credit was flowing smoothly, since saved money would be reinvested by the bank, however, credit has become harder to come by because of circumstances already described, this means there really is money being saved that is not being reinvested in the economy.
The economy as a whole is trying to sell more to save money and buy less, this creates a drop in demand. The drop in demand leads to a drop in revenues for comanies, downsizing, and unemployment. This means lower incomes, lower prices (deflation), and in turn less economic activity and even more saving. Possibly why banks are even more warry to lend right now.
You realize the fault in this don't you? It would mean that if one person gets fired, that demand would drop, so pay would go down by that amount. This would start a spiral whereby at the end no one works. But it doesn't work this way. Why?