Criminal defense in Austin Texas.

What Are Savings?

Posted By on January 5, 2009

The people who keep track of such things (the BEA) have a specific definition in mind when they talk about saving.  It’s “personal disposable income minus personal consumption expenditure.”  Or, what people make, but don’t spend.

Intuitively, it makes sense.  It’s problematic, though.  For one thing, some people object to the fact that capital gains do not count as income.  If the value of your house goes up, they argue, the government should count that as part of your savings.*

For me, the consumption side is a problem.  Do you “consume” a house, by living in it, or does your monthly mortgage payment count as a kind of savings?  What about home improvements?  Does education count?  (The government says “no.”)

Moreover, what do savings really mean, on a national level?  What if we buried half the money in America in the ground, to “save” it for later day?  (Perhaps the day the baby boomers all retire.)  What, if anything, would that accomplish?

It’s easy to mistake money for wealth, since money is wealth, in the world in which we live every day.

But at the national level, money is not wealth.  (If it were, Zimbabweans would be the richest people on Earth.)

It seems to me the issue is not savings, but investment.  What are we building, or designing, or making, that will have value not just now, but well into the future?


They say that because they misunderstand markets.  A market is not a place where money goes, or stays for a while before coming back out again.  It’s a place where money changes hands.  At the end of every market day, regardless of whether prices go up or down, the sum total of all money held by all market participants is always the same as it was at the beginning of the day.  Individuals can win or lose money in the market, but collectively no money is ever made, or lost there.


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