Eat to produce or save to invest?
in economic thought, opposed two major strands of analysis offering visions of unemployment and growth radically different. Indeed, the current neoclassical thinking in terms of balance erected equality between investment and savings as an economic principle. If Keynes recognizes the equal amount of the investment and savings, it does not share not the point of view according to which savings determines investment. According to John Maynard Keynes, the investment is based on expectations of businesses where the key role he attributes to them in its analysis. Yet expectations depending on conditions, that is to say that consumer businesses hope. Thus, we must stimulate consumption by Keynes for businesses to invest. If production is proof of employment and growth, then it is of utmost importance to stimulate them. The two different tests with answers and open discussion. Should we seek the consumption or savings ? What is more beneficial to the health of the economy? We try to understand how savings can contribute to high investment then we will show that the production is more dependent on consumption and finally we will bring out the importance of consumption and production in favor of employment and the investment. Indeed
the accounting point of view, equality between savings and investment will materialize. It seems that a high level of savings would be in line for a high investment. Therefore we find that the neoclassical emphasis on this economic variable. So we'll see how savings can be stimulated and then we will explain the difficulties in such an analysis in time of crisis.
First, the neoclassical are hostile to state intervention in the economy. More specifically, this intervention involves taxes and therefore a levy on disposable income. Consumption is rigid downward, taxes translate into lower savings. And reducing taxes will increase savings in the neoclassical analysis.
Secondly, the theory microeconomic consumer assumes that it arbitrates between immediate consumption and savings, that is to say consume in the future. The interest rate is the price of giving up immediate consumption. Therefore, low inflation and high interest rates are favorable to saving. The consumer can then predict future consumption, low inflation facilitates its discounting calculations. Furthermore the high interest rates it can maximize its utility under stress. The interest rate can therefore stimulate savings because it implies an increase in purchasing power. We will now specify the neoclassical position, that is to say, try to understand why they put so much value to the savings for investment.
The neoclassical reasoning is conducted in terms of balance. There is a balance in the market for goods and services and that of the currency. The aggregate demand for goods and services must match the aggregate supply of goods and services, ie the overall production. However, total production is divided into production of consumer goods and production of capital goods. For equilibrium is achieved, it is necessary that the consumer products are absorbed by household spending. Household incomes are divided into consumption and savings, it follows that savings will finance subject low hoarding. Somehow spending on consumer goods used to finance the production of consumer goods and other savings can finance investment. Therefore according to the neoclassical savings should be sufficient. It is through the intermediation that bank capital providers (depositors) and borrowers (investors) do not meet. That is the role of banks should not abuse the creation of money if there is degradation of foreign trade. Such is the logic of the neoclassical argument.
Yet such a commitment to saving runs into problems in times of crisis. The development of unemployment fueled by the crisis, causes a decrease in consumption. In 1993, the fall in growth rate results in a decrease in consumption of durable goods by 6.7% and Recreation (Document 12b) of 0.4% (paper 12a). And redundancies that accompany the crisis accentuates the decline in consumption. If we maintain a high level of savings, consumption would find even more reduced. In addition to restricting the markets, production could take. Saving is really a leak in such a context. If too much savings, which will consume the products? The neoclassical analysis is thus facing an impasse because the investment is not perpetuated without hope to sell the production. Therefore we will focus the analysis on consumption as a vehicle for investment.
We now show that investment is more dependent on consumption. To do this, we will highlight the importance of consumption in business expectations and we reinstate the state in the analysis as a stimulant, and finally we show the possibility of financing the investment by the credit if the savings is not high enough.
Keynes shows that the decision of production and hence employment levels are made according to current consumption. Companies take into account the balance of power they have with the employees unions. From this report force than the established nominal wages. Especially the companies anticipate that they intend to sell. If they are pessimistic, they will provide low communication and thus produce less and therefore set a lower level jobs because of low investment. This is called self-fulfilling prophecies. Keynes criticizes neoclassical equality of savings and investment. Indeed what saving are not the same as those that invest. It is not based on the savings level of production is fixed. Also encourage saving at all costs that is to say, by raising interest rates may have the opposite effect of what one expects. Companies can then choose to turn the investment rather than investment. In addition to the repayment of loans would be costly. Such analysis is therefore consumption is at the center because it influences the optimism or pessimism of firms. So we must ask ourselves how we can stimulate this brings us back to the state in the analysis. By law
fundamental psychological Keynes, consumption increases as income increases but slower than him. Stimulate consumption is therefore to increase revenue. Households with higher incomes save more. The state can impose the highest incomes to stimulate consumption of low wages, because the average propensity to consume is higher among households with lower incomes. Thereby increasing the overall consumption can reassure companies that will invest and thus ensure a high level of employment. Therefore, consumption remains strong and is therefore conducive to new investments. We are the virtuous circle of Keynesian multiplier. That is why in 1993 we are seeing an increase in benefits of 6.3% while they rose only 2.9% next year (document 11). We have shown the importance of consumption to increase production, but we need to address the issue of its funding if the actual savings is not enough.
We have already seen that the high interest rates can stimulate savings but discourage investment. Knut Wicksell shows that if the market interest rate is lower than the natural rate of interest, while companies are more likely to invest because it does not cost them. In addition, there is the effect lever, they reduce self-financing. And also for households, interest rates lower than inflation prompt them to use credit because they have not much to pay in real terms. This was the case during the "Thirty Glorious" and more consumption was supported by the welfare state. The possibility of credit allows therefore the actual financing of investment.
We therefore focus the analysis on consumption by showing that it was crucial in business expectations. As the issue of investment reflects the fundamental problems of growth and employment, we will emphasize the interaction that exists between employment, output and consumption by extending our analysis. Support
consumption and therefore production can lead inevitably to full employment for a full load? See first neo-classical perspective.
wage rigidity downwards is a barrier to full employment equilibrium in the labor market. By setting a minimum wage, unions increase costs for companies while restricting employment. It yad'après the neoclassical, voluntary unemployment because if the unemployed accept a lower salary, they would all work. But a fall in wages implies a compression of consumption and savings elsewhere as well. Where there is voluntary unemployment as the neoclassical productive forces are under-utilized and more we expose ourselves to being unable to sell the entire production. Employment, consumption, investment and production must be stimulated in the same direction. Yet with the law of diminishing returns and diminishing marginal productivity, neoclassical analysis posits that the last worker who may be taken, which is the marginal productivity is zero. Can we overcome such a problem that would undermine full employment and thus the consumer? In fact, such a question can recall the role of investment and integrate new data: technical progress. This can perpetuate the productivity so that "human resources" can be used. Companies thus produce more, successful employment and households consume. But does this mean that savings are hidden.
In such a perspective is global enrichment. However, according to the fundamental psychological law, consumer spending increase less rapidly than income. It is therefore easy to understand that there will be more and more savings. We have therefore advocated the use of the highest credit would have previously supported investment and consumption. Therefore, the ensuing savings may be interpreted as the repayment of debts. Our analysis leads
So the fact that the stimulation of consumption allows the optimism of businesses hiring and investment and assume the job. Use of credit returns to see savings in the period of prosperity. It why it is considered here that consumption is a priority and it does not mean that there would be no savings and even less that there will be no investment. Instead, focus excessively savings can be dangerous by reducing the opportunities of production.
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