Summary Of Saving And Investment: Forty Years Of Decline By Alan Cole

In this article, U.S. Saving and Investment: Forty Years of Decline by Alan Cole he explains the value in saving and investing as a nation. He explains that savings has a long lasting value for the future rather than just spending it all right away. In investing he also explains, it is that save income spent in purchasing buildings and/or machinery to produce goods, which will result in an income return in the future. Also, he describes that America has become less dedicated in saving and investing over the past forty years. In 1969, this country used to save 10% of its GDP, resulting in a rise of net worth by 10% of GDP. At a difference of the past 10 year specifically 2008 were this country’s saving was less than zero, this resulted because the government borrowed faster
than households could save (Alan Cole, 2014). Back in 1969, this nation invested around 10% of it GDP net of depreciation and besides the upgrading in technology and structures, the nation built new capital of 10% of GDP. In contrast, in 2013 it was less than 4%. Saving and investing are paramount to bring a sense of security and economic growth to the country.
He suggests, “America can and should do better in this respect, and one way it can do that is by improving the tax code to be less biased against saving and investment.” (Alan Cole, 2014) What Americans save on average is less than 5% of their income today, after-tax. In comparison with 7% in the beginning of the 90’s. The American population is saving in a smaller amount for the reason that, the greater cost of house price and interest rates. The housing sales were at the highest, like the stock market earlier, permitted buyers to save without having to lessen their consumption. As the worth of resources escalated, people naturally felt more confident in spending.

These days consumer spending has not been its best, but it has not lessen, not as a result of income having increased, but as a result of consumers are now in more debt, generally by refinancing against rising housing prices. This is a perfect example of the definition of the marginal propensity to consume (MPC), which is affected by consumer confidence and interest rates as they affect the rate of return on
savings.

Through having less money accessible in savings to financial institutions, interest rates are equally greater for people who save and borrow. As a result this makes it pricier to invest in production of goods, thus reduces the growth of the GDP. Lesser savings rate equals a greater consumption rate, consequently stimulating expenditure, and income a process known as the multiplier effect. People don’t want to save to just have money in the bank, but to extend consumption over their lives.

Also this country has a consumer tendency, of continuously having to purchase the latest technology and we thank the media for it, consumers spend more than saving, GDP equilibrium will not be stable. This gives an outcome of unemployment and inflation occurring since low spending by investors does not balance the low savings rate of consumers. In conclusion, in my opinion America is a high consumption, low saving economy and it has been relatively manageable only because of Europe and Asia, disposed to save, produce and export. This country’s economy is reliant on consumption and financing by taking up loans from other countries. Rising in consumption equals reduction in savings. The consumer confidence, which had improved in December, increased in January. The Index now stands at 102.9 (1985=100), up from 93.1 in December. The Present Situation Index rose to 112.6 from 99.9, while the Expectations Index increased to 96.4 from 88.5 in December (The Conference Board, 2015).