MLM Directory

What kind of economy would generate really low savings?

Free market, centrally planned, mixed... Any other types?

Public Comments

1. Centrally planned economies have the lowest savings rate. The reason why is simple: the means of production are owned by the government so the money that individuals would normally save to invest for themselves gets taxed away so the government can spend it as it sees fit.
2. All economies can generate really low savings rates if inflation rates are much higher than interest rates, even to the extent of dis-savings occurring. There can be high public/ government savings if income from taxation exceeds expenditure resulting in large financial surpluses as is the case with Canada now. The reverse is true in the US where the government is into deficit fiscal management. The type of economy need not make any difference. Traditionally in centrally planned economies it was governments that did the saving to finance capital investment, but I recall in the Soviet Union in the early 1960s there was a big drive to get the public to invest in interest bearing government bonds, so there can be and were exceptions, as there are today in China.
3. It really depends. The US has one of the lowest savings rate (and I also just read an article that more and more Americans are in debt), while Japan has a really high savings rate. It really has to do with preferences. Apparently, Americans will trade consumption now for consumption later, while Japanese value consumption later more than we do.
4. An inflationary economy. Why bother saving while the money in your possession is losing value? I was told the Russians would have plenty of money in their pockets yet nothing in the stores to buy with it. Americans have no money to spend yet stores and wharehouses are loaded with stuff to buy. Someone has their wires crossed somewhere when neither system works fully? Does this help any?