Re:Texas Senate passes bill aiming to counter federal subsid...
by js8 on Thursday April 08, 2021 @06:12AM
(#26737019)
> Basic macroeconomics tells us that savings must be invested.
Because this wisdom is wrong. Investment is buying non-liquid capital, and to some extent, an irreversible decision; while saving is pretty much keeping liquid capital (like money) on hand.
So if you invest (make an irreversible decision), you are taking a risk that the decision is wrong. Therefore, other players on the market, who save and not invest, can learn from and react to your decision. In other words, keeping options open by saving (and not investing) gives you an upper hand over people who do invest.
Of course, if everybody saves and nobody invests, everybody loses as well. It's a prisoner's dilemma of sorts.
In practice this often manifests by large corporations keeping large amount of savings on hand, so they could "invest" in smaller companies that are deemed to be winners. It's generally a better strategy than to invest themselves everything back into some cutting edge research and risk these investments won't pan out.
The basic macroeconomic wisdom ignores this dynamic (and the fact that fundamental difference between investment and saving is that one is irreversible and the other is reversible), and so it concludes that all money that is not consumed (savings) must always be invested.
Because this wisdom is wrong. Investment is buying non-liquid capital, and to some extent, an irreversible decision; while saving is pretty much keeping liquid capital (like money) on hand.
So if you invest (make an irreversible decision), you are taking a risk that the decision is wrong. Therefore, other players on the market, who save and not invest, can learn from and react to your decision. In other words, keeping options open by saving (and not investing) gives you an upper hand over people who do invest.
Of course, if everybody saves and nobody invests, everybody loses as well. It's a prisoner's dilemma of sorts.
In practice this often manifests by large corporations keeping large amount of savings on hand, so they could "invest" in smaller companies that are deemed to be winners. It's generally a better strategy than to invest themselves everything back into some cutting edge research and risk these investments won't pan out.
The basic macroeconomic wisdom ignores this dynamic (and the fact that fundamental difference between investment and saving is that one is irreversible and the other is reversible), and so it concludes that all money that is not consumed (savings) must always be invested.