Paradox of Thrift

[doodle]

So in other words, the paradox of thrift exists but doesn't manifest itself because of our profligate ways? But if the paradox of thrift could theoretically exist then that must mean that savings is a zero sum game.

No. I reject that logic. That something could theoretically exist does not in any way imply that its theoretical conclusions are applicable to an environment that does not share any of the assumptions that make the theory applicable.

I'm simply making the statement that saving is a zero sum game. Is it or is it not? If not, then Keynes and the paradox of thrift are not even "theoretically possible" which you seem to say is at least possible although most implausible....

[Pointedstick]

So in other words, the paradox of thrift exists but doesn't manifest itself because of our profligate ways? But if the paradox of thrift could theoretically exist then that must mean that savings is a zero sum game.

No. I reject that logic. That something could theoretically exist does not in any way imply that its theoretical conclusions are applicable to an environment that does not share any of the assumptions that make the theory applicable.

I'm simply making the statement that saving is a zero sum game. Is it or is it not? If not, then Keynes and the paradox of thrift are not even "theoretically possible" which you seem to say is at least possible although most implausible....

Savings are a zero-sum game within the conditions of a completely closed system.

Savings are not a zero-sum game outside the conditions of a completely closed system.

[doodle]

Is the Earth a closed system?

[doodle]

Im not trying to be a jerk PITA btw....

[Pointedstick]

Is the Earth a closed system?

Yes. So it is true at a global level, but not true at every sub-global level--that is to say, it is not true for every country, state, city, town, person, etc. This phenomenon is even acknowledged by Keynesians, and is referred to as "exporting your way out of a recession."

But as soon as we colonize other planets, then it will be the universe that's the closed system. Or maybe not; my knowledge of quantum physics isn't so good.

[mukramesh]

If I take out a 10 dollar loan to buy a haircut from you I haven't really created $10 dollars because I have a liability now that cancels out that money that I just conjured up.

Isn't a fiat money system technically a negative sum game? If you take a $10 loan to buy a haircut at a 10% interest rate and pay it back one year later, you actually owe $11.

This blew my mind the first time I read it.
I Want the Earth, Plus 5%: http://www.relfe.com/wp/money/want-earth-plus-5/

[Libertarian666]

If you're talking about stuffing wads of cash under a mattress, then maybe that's a zero-sum game.  Most saving is in other forms.

Nope. Even that is not zero-sum, as it reduces prices for everyone else.

[whatchamacallit]

My understanding is that every dollar in existence is created from a private debt.

This is all just off the top of my head but I can only think of two private parties that can take on debt. Businesses and individuals.

As long as the businesses continue to expand their debt and in turn create dollars, all individuals could save more dollars than they earn.

If all businesses and individuals stopped taking on debt, wouldn't all dollars be extinguished?

The assets would still exist but the medium of exchange would be gone.

[lordmetroid]

No some dollars(The ones that you can hold in your hand), is printed without an agreement of repayment. You have to separate between cash and credit, they are very different things. As long as the economic wheels are turning, all debt can be repayed by circulating the cash.

[Tyler]

So are you saying that the paradox of thrift doesn't exist or can't exist? It seems possible that everyone could decide to jump on the MMM bandwagon and start saving 80% of their income....stop buying cars, stop going out for drinks and dinner etc. etc.... If that happened I along with everyone else in my city would lose our jobs and thus wouldn't be able to save anymore. So it seems that there is some connection between spending and saving? No?

Since you mentioned MMM, here's his opinion the topic: http://www.mrmoneymustache.com/2012/04/ ... me-frugal/

[sixdollars]

My understanding is that every dollar in existence is created from a private debt.

This is all just off the top of my head but I can only think of two private parties that can take on debt. Businesses and individuals.

As long as the businesses continue to expand their debt and in turn create dollars, all individuals could save more dollars than they earn.

If all businesses and individuals stopped taking on debt, wouldn't all dollars be extinguished?

The assets would still exist but the medium of exchange would be gone.

I thought dollars were "created" whenever the federal government decided to spend money (via the fed) which could then make its way into the private sector

[sixdollars]

My understanding is that every dollar in existence is created from a private debt.

This is all just off the top of my head but I can only think of two private parties that can take on debt. Businesses and individuals.

As long as the businesses continue to expand their debt and in turn create dollars, all individuals could save more dollars than they earn.

If all businesses and individuals stopped taking on debt, wouldn't all dollars be extinguished?

The assets would still exist but the medium of exchange would be gone.

I thought dollars were "created" whenever the federal government decided to spend money (via the fed) which could then make its way into the private sector

Not exactly. Money is created when (i) the federal government deficit spends and (ii) banks issue loans.

Upthread, I referenced a post in Cullen Roche's Pragmatic Capitalism blog.  You might enjoy poking around there, and in particular, taking a look at some of his posts in the "Education" area.  He's put alot of work into understanding how the U.S. monetary system operates.  Also, he's uploaded a paper to the Social Sciences Research Network that consolidates alot of what he has on his blog.  It's long, but well worth the effort, IMO.

Understanding the Modern Monetary System

Thanks for the references! I'll definitely check these out

[MachineGhost]

But every loan or credit is cancelled out by a debt or liability.

No, every loan or credit is OFFSET by a corresponding asset or liability.  It's net neutral, but the overall wealth pie grows larger.

[MachineGhost]

So in other words, the paradox of thrift exists but doesn't manifest itself because of our profligate ways? But if the paradox of thrift could theoretically exist then that must mean that savings is a zero sum game.

No it just means you're choosing not to borrow down the line when you save.  Without borrowing, the money supply won't expand.  Zero sum implies no one wins.  If anything, saving is a negative sum game to the real economy.  Don't conflate saving with investing though (real investment, not purchasing "savings certificates" on the secondary markets).