Another sense I am gathering from the blogosphere is that understanding the macroecnomy in practice is about understanding savings.

That seems astoundingly obvious on one level as Keynesianism is all about savings; Moneterism is largerly about money and its dual role as a store of value; and Wicksellianism is all about the interest rate.

That’s all fine as a technical matter. However, what I think folks are missing are deep conceptual issues around savings.

At its heart I think it is because people have deep emotional issues attached to savings, so let me tell some personal stories that will help illustrate why I see the difference.

When I was a small kid, maybe five  or six – I can’t remember exactly – I was fascinated with savings. In particular, I was fascinated with compound interest because like many math oriented kids I loved the non-intuitive nature of geometric series.

I would sit I the bath calculating how long it would take to reach various levels of wealth given certain rates of savings. This was before common place calculators – at least for someone at my income level – and so I would develop lots of tricks that are now obvious to anyone with basic financial math, like doubling time and reverse amortization to go from a final wealth to a payment.

What ever quirk this is stayed with me the rest of my life so that as I have written before, I spent part of my youth providing financial services to folks who don’t have access to mainstream means.

My infamous – truly ask many of my old friends – miserliness was not limited to just accumulating compound interest. In the 90s when interest rates were low by my standards I did in fact keep thousands of dollars in cash in my sock drawer. No reason. I just did.

For most of my life I have hated material consumption, especially nondurables. I have personally owned one car in my life and that was a hand me down once I started working away from home in a town where I need transportation. Every other vehicle I have driven was someone else’s.

Besides computers, which I was bought once I left the free access of the university computer lab, I have rarely owned major devices. I have never bought a television or home appliance for myself. I once accepted a hand me down toaster oven. I have never bought a piece of furniture for myself.

In college I lived on a mattress on the floor a got from someone who was moving out and a couch a got in return for power washing a ladies basement. I never owned more than one plate, one pot, a pan and a few forks for myself.

The primary meat that I ate one my own was canned tuna and that was back before the health craze made it so damn expensive. At the time you could get them on sale for 25 cents a can.

As I mentioned before I have never had bought health insurance for myself with my own money and until I became much older I never paid for physician or hospital services with my own money. Though I did buy pharmaceuticals.

I say all of this to make it clear that the moral issue of trying to conserve was never a problem. My view has been that material things were a burden and in general even taking care of them took up more time and energy that they were worth.

As such I have never felt the guilt waiting to consume beyond my means and I think that gives me a different perspective on the world.

That is because the guilt seem to cloud the thinking of most people and lead them to conclude that forestalling consumption and worse reducing expenditure is an unmitigated good. To be clear I like to forestall consumption but out of pure selfishness. Not concern for anyone else or “doing the right thing.”

This I believe helps me think more clearly about savings and to understand the inherent difficulties associated with it. Far from being a utopian ideal to which we should all strive, savings is actually logistically difficult. Things rot. The wear out. The become obsolete.

You have to pay to save, and I know because it is a payment I have had to endure. You can loan your money to someone though outside of official channels getting it back is a non-trivial exercise.

People can and do loose your money.

This is actually more common than people stealing your money. Most people will lose your money out of stupidity. Its another story all together but people consistently think that their plans and ideas are good when almost all plans and ideas are shit.

In any case transporting resources into the future is a fundamentally hard proposition when you try to do it yourself. Then you might ask, why is it so easy for society to do it.

Well this was a puzzle for me, but if your interest is peaked by this then you will investigate and notice that it comes down to couple of things:

One, the court and credit system help you to enforce claims against other people: When you loan people money they will probably use it for some stupid idea for the sheer fact that most ideas are stupid. This will result in a loss. However, what you can do is get either the court or the credit system to entice them to give you some of their other stuff instead.

This is why going into debt seem like a bad idea for most people. There is nothing wrong with the debt per se. Its just that the debt empowers them to act on their ideas, which once again are fundamentally stupid.

Without debt they just sit around imagining all the goods things that could happen if they had access to resources but of course none of these good things will actually ever happen  no matter how many resources they have access to, so they are better off just living in fantasy land.

Two, buildings, buildings, buildings: Building are like magic for so many reasons. For one thing they deteriorate very slowly. That’s usually your problem with most savings. Things rot. Buildings of course “rot” but they do so very slowly especially if they are made out of concrete or set on a concrete foundation which is a huge freaking deal. Like really a game changer.

Second, is buildings allow for increasing productivity. Its not just that you build a building and then the folks in are more productive. You build a building and then the next building you build right next to it is more productive. Its like freaking magic.

This of course is the origin of urbanization, and it’s a huge deal. It allows your savings to work wonders.


The thing is these golden gooses do not work all the time. For one thing the loaning people money doesn’t work in the aggregate. Not everyone can save by loaning people money. Boom, right there half the ease of savings is gone. What is easy for a person is now hard for a nation or the world.

The second is that buildings run into problems. For one people want to move but moving buildings is hard. For two, people put up all sorts of zoning restrictions. For three congestion ultimately decreases the usefulness of buildings. For four, stupidity rears its head and sometime people build buildings in really unfortunate locations. For five, buildings work best when you can fill them with people and at least in the developed world we are running out of people.

All of this comes to the point that in an aging industrialized country that already really dense savings because really difficult. Nonetheless people are still programed that its an unmitigated good.

This makes it hard for them to accept  it when folks like me say, look you need to chill out on the savings. People think I am crazy. Then when their savings yield no return they get all upset like they have been screwed, when in fact this is just life.

This phenomenon is so pervasive that whole economies go into recession in part because people cannot wrap their minds around the concept that savings is logistically difficult and that if you do too much of it you will run into to trouble.

Those with money insist that the government hold steady or in some cases even reduce the quantity of money in circulation so that money becomes more scarce and it appears that they are becoming wealthier when in fact they are just taking an ever increasing portion of a shrinking pie.

The problem is just that savings is logistically difficult yet people cannot seem to accept this.