0.20 General introduction to savings mobilization

The next few chapters are mainly about financing economic growth and economic development. Where do you get the resources to pay for government spending on Human Capital, especially primary and secondary education? How do the public and private sectors find the resources to invest in Human Capital, or in physical capital (such as new factories) or natural capital. Do you get the resources domestically? Or can you fund foreign sources aid or foreign direct investments.

So, now we may consider Saving Mobilization .

First- mobilization savings through the public sector (taxes). Then mobilization of savings, through domestic private sector (households and corporations). Then mobilization savings from foreigners .

Overall introduction to savings

How has savings trended in rich countries in past four decades? (Need this as perspective for understanding LDC savings trends).

First though, let us understand a truly fundamental point, never forget it, how does a society best provide for interests of future generations? Answer: leave future generations a larger capital stock then was bequeathed to present generations, without ruining the environment in the process.

Capital Stock – both physical and human capital and natural capital stock resources economics. There is only one good way to finance a larger capital stock. Savings, whether private or public, foreign or domestic (we will see that sometimes nations resort to inflation to finance. Rising savings rates reflect societal preferences for improving welfare of future generations.

Falling saving rates reflect the opposite: a lower societal preference for improving welfare of future generations.

Finally saving rates are bad enough in rich countries, but in poor countries falling saving rates would mean they would never catch up to rich ones.

In fact net national savings rates in rich nations have declined very sharply since 1970 until 2008.

Note Canada as outlier. Explanation? Unclear.

Since 1970, there have been very sharp declines in the saving rates in U.S. and Italy. Japan used to have high rate, Japan rate now ¼ that of 1970, so is U.S. and Italy.

What is going on?

Role of demographic factors – rapidly aging societies may help explain declines in Japan and Europe: There, stagnant population growth, aging leads to more current support for older people probably mean less support for future generations. But that does not explain the U.S. savings decline since the U.S. population still relatively young compared to Japan and Europe.

Is this bad news? Yes. However, CAVEAT emptor , always be careful interpreting such figures.

There is “some” good news imbedded in these figures.