Alan Greenspan: Notion that foreigners are ripping us off is 'nonsense'
- Thread starter dealmaker
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"Entitlements are crowding out gross domestic savings."
Yep
Yep
The US has clearly been in decline the past 30 years, relatively speaking. Why would we value the advice of the very people who oversaw this decline? Wouldn't we want to do the opposite of what they advocate?
I think I understand Greenspan's thinking on this. I think he has it wrong. It may be that he is still stuck in pre-1971 mode. All dollars spent into the economy are fungible. A dollar spent on entitlements is the same as a dollar spent on bubble gum or F-35s. What determines net increase in domestic savings is the net increase in the deficit independent of what the deficit dollars are spent on. Of course what they are spent on and how they end up being distributed does matter. But whether they are spent on bubble gum or F-35s doesn't effect net domestic savings; it just effects the distribution of savings, but the net savings is the same.
Of course, were the government to decide, in lieu of spending somewhere else, to spend on entitlements instead, and thus somehow either balance the budget, or even produce a surplus on the government side, net domestic savings would either not change or be reduced. It is the amount spent into the economy by the government minus the amount withdrawn in revenue that determines the change in net domestic savings. If the government wants to increase the net domestic savings, it must produce an equivalent deficit, and vice versa. Not only can deficits be too big, they can also be too small.
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My understanding is perhaps dated however I understood him as referring to savings in relation to trade defect (savings vs investment (in crap))
This may be an ill picked but from a skim:
https://www.cato.org/publications/congressional-testimony/americas-misunderstood-trade-deficit
Let me think about this a little. Of course the picture I painted was for a closed economy, but my understanding is that the picture is little altered for an open economy that trades outside its borders. But I need to think about it. In the meantime I'll carefully read Griswold's article.
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presuming the definition below is correct...
I don't see how one would argue that a dollar spent on entitlements would be anywhere near as positive as a dollar spent on useful infrastructure. If the dollars were spent on entitlement which were investments into people that is one thing. But with the existence of benefits cliffs in the US... entitlement frequently keep people poor ...they do not do enough to make them productive workers.
Plus entitlements cause inflation in consumer goods. while good transportation infrastructure could bring the cost of goods down. Leaving more more for capital formation.
https://economictimes.indiatimes.com/definition/gross-domestic-saving
Definition of 'Gross Domestic Saving'
Definition: Gross Domestic Saving is GDP minus final consumption expenditure. It is expressed as a percentage of GDP.
Description: Gross Domestic Saving consists of savings of household sector, private corporate sector and public sector. Gross domestic savings had followed a downward trajectory after 2008. The more concerning issue is the perceptible shift of investors’ preference towards physical assets as compared to financial assets. This can be attributable to a rise in inflationary pressures. Gross capital formation is a function gross domestic savings.
I don't see how one would argue that a dollar spent on entitlements would be anywhere near as positive as a dollar spent on useful infrastructure. If the dollars were spent on entitlement which were investments into people that is one thing. But with the existence of benefits cliffs in the US... entitlement frequently keep people poor ...they do not do enough to make them productive workers.
Plus entitlements cause inflation in consumer goods. while good transportation infrastructure could bring the cost of goods down. Leaving more more for capital formation.
https://economictimes.indiatimes.com/definition/gross-domestic-saving
Definition of 'Gross Domestic Saving'
Definition: Gross Domestic Saving is GDP minus final consumption expenditure. It is expressed as a percentage of GDP.
Description: Gross Domestic Saving consists of savings of household sector, private corporate sector and public sector. Gross domestic savings had followed a downward trajectory after 2008. The more concerning issue is the perceptible shift of investors’ preference towards physical assets as compared to financial assets. This can be attributable to a rise in inflationary pressures. Gross capital formation is a function gross domestic savings.
Well. I just read the Griswold article, thanks for the link. And overall I found to be a well written rejoinder to Trump's idiotic focus on the "Trade Deficit", which of course completely ignores the U.S. Capital Account surplus. And of Course, as usual, Trump gets the numbers wrong anyway and attributes all sorts of maladies to it he ought not to, and in the process is trying to screw up everything, and insult a lot of people that are a lot smarter than he is --never a good idea. In fact he seems to be a person utterly devoid of integrity, just pulling numbers left and right out of his ass. . It seems he will say anything, do anything, if it promotes his power and influence over his misinformed followers. I think my comments above remain correct, but I need to comment on why the government budget deficit equals the net savings increase even in an open economy. I'll do that later though, because at the moment I am inclined to go out and drink a nicely brewed Bock Beer from Shiner Texas. later.
They should have locked up greenspan back 2008