What do we owe our grandchildren? Not more factories, surely

Is there any particular reason for a country as rich as ours to worry about its savings rate?   I can’t see one.  Very few of our problems would be solved by getting richer (as opposed to technologically more advanced, more capable of producing public goods and restricting the production of bads, and better-governed).  Since GDP per capita continues to rise, saving means depriving current consumers for the benefit of future consumers who will be richer than we are.

Of course concern about future generations is to be applauded.  However, if I try to put myself in the position of a trustee for those Americans who will be alive in a century, I’m worried about the tiny budget of the National Science Foundation and other basic-research enterprises, about an increasingly shoddy educational system, and about cooking the planet.  The stock of capital plant and equipment, not so much.

Comments

  1. valuethinker says

    Mark

    Technical change is embodied in capital equipment.

    So, for example, to become more energy efficient, the US has to make capital investments.

    To increase productivity and hence have more goodies to spend on public healthcare and R&D and higher education, a country needs to be richer.

    In part (Solow notwithstanding) it gets richer via capital expenditure.

    A good worry is that you wind up like the old Soviet Union, or Japan, or South Korea. Pouring downs lots of concrete and ruining the environment as 'investment' aka political slushfund for contractors.

    *that* is the main worry with excess investment.

    A secondary worry is intergenerational. Spend now, children will have to pay it back. With aging demographics this is a huge risk.

  2. says

    Proposed exam question:

    Hypothesis: The development of economic theory through the concept of comparative advantage and the fall of mercantilism as the dominant government policy led to a rise in the social valuation of non-land-based capital. In turn, this has led to a substitution of monetized, non-land-based capital for pure land ownership as a basis for perceived power bases, success, and social standing.

    Discuss. Your answer should include, but not be limited to, both historical and contemporary changes in nation-state dominance in multinational economic units, and the effects of internal social perceptions on external economic relations.

  3. Kenneth Almquist says

    You've identified a rather major hole in Brooks' argument. One thing that Brooks could have argued is that relative wealth has a large effect on the distribution of power. The primary reason that the United States has the most powerful military in the world is that we spend a lot more money on our military than other countries do on theirs. This is probably sustainable only as long as we remain the richest country in the world.

    I talk about military power in the previous paragraph because that's the type of power that conservatives are most concerned with, but the nonmilitary benefits of relative wealth are also significant, though harder to measure. For example, membership in the G8 is a direct consequence of being one of the eight richest countries in the world. Countries that don't make the cut are largely left out of the discussion.

  4. Rob in CT says

    One of the things about the national savings rate that concerns me is that my read of it is this: many Americans, far more than I'd like, appear to be financially reckless. That scares me, for two reasons: a) these people can recklessly crash the economy; and b) these people vote.