Hi, I have been interested in Economics for a few years; I have been reading this site and a few of the books on it for the last two or three months, and I have some things I would like to clear up.
(I don’t know if this would be better in the Economic forum or this, sorry.)
Anyway: is saving preferable in a recession because it would mean less capital goods necissarily have to be liquidated? Would it be correct to say, in our situation with the “stimulus package,” that saving would be a form of spending for future consumption and would mean that less higher order good would have to be liquidated?
Also, could someone explain or direct me to somewhere that explains how the ABCT applies to our situation right now? More specifically, was the housing bubble a result of the new money in the economy going towards houses first?
I hope what I have written makes sense, thanks in advance.
If people are saving more of their money, that means that demand for goods to be consumed falls. A larger inventory of goods is now available to investors that was not available when consumers wanted them. These goods can be used to invest in plans that were not economically viable beforehand.
As I understand it, not necessarily. The current structure is based on excessive credit expansion. Credit is not capital. Capital is savings (deferred consumption) or productive gain (profit). Credit is merely debt, or the promise to defer future consumption/profits.
Capital and savings are preferable because the bad credit (malinvestment) has to bleed out of the system, and be replaced by real investment. The process of investing helps determine which business activities are viable/worth continuing, and which ones are not.
I hope this helps. I know it wasn’t precise, but maybe it helps you better connect the dots in the future,