Questions Related to Consumption and Saving

  • Lester D. Taylor


As we have seen, decisions to save out of current income are additions to the pool of fluid capital, while decisions to consume or invest in produced means of production are subtractions. The economic drivers in an economy have been seen as owners/operators of productive capacity deciding how much of that capacity to utilize, entrepreneurs deciding how much to invest in new capacity, and households deciding how much of their income to consume. In general, this book has not been about the motivations that cause these decisions to occur, but rather about the implications of the decisions for changes in the pool of fluid capital and attendant effects upon interest rates and the general price level.


Natural Rate Income Elasticity Current Income Retirement Saving Economic Driver 
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  1. 3.
    In a Newsweek article in 1967, Paul Samuelson wrote: “The beauty about social insurance is that is actuarially unsound. Everyone who reaches retirement age is given benefit privileges that far exceed anything he has paid in.” This beneficence is possible, Samuelson goes on to say, because “the national product is growing at compound interest and can be expected to do so for as far ahead as the eye cannot see…. A growing nation is the greatest Ponzi game ever contrived.” [Italics in original. Quoted also in The New York Times Magazine,August 27, 1995, p. 56.] Samuelson’s contention that the national product will continue to grow exponentially obviously requires that savings be productively invested.Google Scholar
  2. 5.
    A van Gogh can bring $82 million in today’s world, not because it is intrinsically worth (whatever that might mean) this amount, but because the world pool of fluid capital is sufficiently large to support such a value. Let there be a worldwide famine (or earthquakes which completely level Japan, the U.S., and Western Europe), and the price of the van Gogh would plummet. On the other hand, let there be strong economic growth in the world for the next 20 years, and a painting (though not necessarily the van Gogh) 20 years from now could easily bring upwards of a billion of today’s dollars!Google Scholar
  3. 6.
    See Taylor (1987, 1988, and 1992 ). Cf., also Scitovsky (1976).Google Scholar
  4. 7.
    An important implication of this section is that necessities (income elasticities less than one) in a high-income economy can be luxuries (income elasticities greater than one) in a low-income economy. A television set is a necessity for a household in the U.S., but not in Indonesia. Consequently, what are mature markets in rich countries can be important growth markets in poor countries. Recognition of this disparateness in income elasticities has been a major factor in many of the “Asian miracles” in the I980s and I990s. For an entertaining account of such income elasticity `arbitrage’, see Thurow ( 1999, Chapter 3).Google Scholar

Copyright information

© Springer Science+Business Media New York 2000

Authors and Affiliations

  • Lester D. Taylor
    • 1
  1. 1.University of ArizonaWilsonUSA

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