Arnold Kling  

Megan McArdle is a Vicky

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She writes,


If you're like, well, almost everybody, you're not saving enough. 15% of each paycheck into the 401(k) is the bare minimum you can get away with

If I were to channel my inner David Graeber, I would say that if you save more, then someone else has to go into debt more. After all, how can you obtain a promise to future consumption without someone else making such a promise?

Saving is a positive-sum game when it finances capital formation. Otherwise, it may be more of a zero-sum game, in which people with one set of values accumulate wealth while people with another set of values squander wealth. Hence the term "Vicky," from Neal Stephenson's The Diamond Age.

It gets worse. The Vickies are going to end up with a rising share of income, and the Thetes (the squanderers) are going to end up with a falling share of income. Cries of "Fight Inequality!" will echo throughout the land. Scott Sumner's pleas to focus on consumption rather than income will go unheeded.

It gets worse still. The ultimate squanderers are politicians, who squander other people's money. Under the banner of "Fight Inequality!" they will squander even more.

This leads to a different version of the paradox of thrift. The more that the Vickies save, the more the politicians squander. Overall net saving and capital formation fall.

Have a nice day.


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CATEGORIES: Income Distribution



COMMENTS (15 to date)
Brian writes:

That makes no sense. What part of person X saving $N_x implies that there must exist a person Y that saves -$N_y?

Additionally, if money isn't being invested, I don't think it's being wasted. By that metric, no country should bother keeping foreign reserves, since that's money that's not being invested.

James Oswald writes:

@Brian: It implies that countries do not make themselves collectively richer by accumulating foreign reserves, which is entirely true.

Kling specifically excludes capital formation, so the only thing left is debt. One party to the debt is the saver, or lender, and the other side is the spender, or borrower (waster, perhaps?). When the spender wants to spend, they increase their spending by collecting from the borrower. Without investment, 0 sum thinking is correct.

Bob Murphy writes:

I don't get it...Is this entire post tongue-in-cheek? Kling seems to be saying, "I know people saving more can lead to capital formation, but let's suppose it didn't. Then people saving more would be bad. Wouldn't that be bad?"

Fralupo writes:
Saving is a positive-sum game when it finances capital formation. Otherwise, it may be more of a zero-sum game, in which people with one set of values accumulate wealth while people with another set of values squander wealth.

Zero-sum financially, but probably not from a utility perspective. If my personal discount rate is lower than yours, and you're willing to borrow from me at an interest rate between our personal preferences, then it may be financially neutral but certainly mutually beneficial for me to lend to you.

Mark Brady writes:

If more saving translates into holding higher money balances, the demand for money increases and the purchasing power of money rises (and the overall price level falls).

Becky Hargrove writes:

Correct me if I'm wrong, but I take this to mean that our most apparently safe form of savings is now whatever government wants to party with. If that is the case, what point in printing further money in what is only 'sticky markets' for the local fool to try to survive in?

Mark Brady writes:

Of course, someone might respond to my previous post by asserting that if less saving translates into holding lower money balances, the demand for money decreases and the purchasing power of money falls (and the overall price level rises). However, does this proposition hold to the same extent as the first one that I posted above?

Eelco Hoogendoorn writes:
If I were to channel my inner David Graeber, I would say that if you save more, then someone else has to go into debt more. After all, how can you obtain a promise to future consumption without someone else making such a promise?

Who's promise for future consumption does the squirrel who stores his nuts depend on?

It seems to me you are confusing real and nominal savings. Nominal savings obey accounting identities, yes. But we dont save for the sake of having a large amount of digits to stare at.

James Oswald writes:

@Mark Brady (#2): Yes. That's basically a restatement of the paradox of thrift.

Jehu writes:

When Savers and Spenders meet in the marketplace, and arbitrate their desires there, they tend to like one another. Savers, by their behavior, drive interest rates down, spenders drive it upwards.
However in modern society, this natural interaction is generally bypassed in favor of political arbitration of their desires (i.e., screw the savers). Eventually even the most thrifty will get the idea. Many will move to a canned foods, precious metals, and bullets portfolio.

Lord writes:

The half of capital formation that is real estate is bound to turn around, any day now, any day...

Dan writes:

@Lord

Just like all the subsidized student loans that paid for Humanities degrees are going to dramatically boost the productivity of our workforce...

Bob Layson writes:

Assume that all those that want one have a job paying a money wage. Suppose then that many or most income earners attempt to save more of their income than hitherto. Those that do not lose their jobs or income as a result of a general fall in consumptionn spending will succeed in their attempt to save more. The assets thus made available by a fall in the demand for, and the production of, certain goods can now be purchased, thanks to the accumulated money savings, and used to put the newly redundent to profitable employment - but only if they are not tax-subsidised to to stay put and hope for normal business to return, or to insist on employment of their usual kind at their previous wage level.

Hugh writes:

Currently individuals have large borrowings whilst corporations have savings.

It would be better for individuals to have savings against rainy day risks and old age, whilst corporations borrow funds for use in riskier projects.

Or am I missing something?

Jeremy, Alabama writes:

Arnold is suggesting that there is a new moral hazard to saving - the consumers, who will have since become poor, will demand politicians spend savers' money, and politicians will be happy to oblige.

Savings may be socialized, through many mechanisms: inflation, changing tax laws, forcing 401k's to buy government debt, or just taking it.

My corollary to McArdle's Tenet is to Be Geographically Diverse. Buy property in Central or South America, eastern Europe, buy stocks overseas, buy gold, silver, etc. Since the US appears to be on track to punish Vickys, Vickys will find ways to defend their assets.

An exercise for the reader is whether the moral hazard for saving affects the middle class or the rich the most.

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