Is it rational not to save?
If you’ve read any of my previous posts you know I believe in consuming less than you produce, saving the rest, and thereby building wealth through the accumulation of capital (unconsumed production).
I read an interesting blog post today which argues that, in an inflationary environment where paper money is not backed by gold, it is rational for folks not to save because by doing so they lose money: inflation is greater than the Fed’s artifically low interest rate and so savers lose.
I don’t agree with this article.
True, if you put your money in a savings account and earn 3% while inflation is at 5% you lose.
But don’t put your money in a savings account.
Buy good stocks or some other productive asset which will, on average, earn more than 5%.
The point is you need to have some money to put somewhere in the first place and that can’t happen if you spend more than you make.
I don’t see how you can get around the fact that in order to build wealth you must first, make something, and next, consume less than you make, which means you must save.
Regardless, it’s an interesting post.
It made me think.
The link is:
http://www.campaignforliberty.com/blog/?p=290
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5 Responses to “Is it rational not to save?”
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That would imply that instead of relying on your hard work maintaining its value you will just depend on the ability to pick stocks long before becoming artificially inflated … which is precisely what will take the world economy into the largest crisis ever …
No. It would imply that there are ways to own pieces of productive enterprises that through their hard work earn, on average, more than 5% on equity per year.
Hmm … seems to me that the “no-savings” argument is invalid on its face, simply because of the uncertain nature of life. If s**t happens (and it always seems to,) you’ll need money fast and your only alternative is to borrow. You’ll be paying *a lot* more in interest than any damage inflation could do to your savings. This is a typically short-sighted viewpoint (perhaps suggested by someone with no savings?!)
“But don’t put your money in a savings account.
Buy good stocks or some other productive asset which will, on average, earn more than 5%.”
You’re not saving when you buy stocks or other investments. You’re buying a product. Its not a DVD or cheese but it’s a product for consumption all the same.
Randy: I would highly recommend you go and figure out what the difference between an asset and a liability is. Try “Rich Dad, Poor Dad.”