So what’s the big deal? If corporations are saving more, that should be good right? Especially since both household and government sectors appear to have headed the other way. Actually, from my perspective, higher corporate savings isn’t to be desired because it’s likely the cause of higher household and government debt. To see why, consider the inter-linkages between these three sectors within the economy. Let’s posit the following: Households provide labour and capital in return for wages and dividends, and consume goods. Excess income is saved via the banking system, and borrowings can be used to smoothen consumption over time. Corporations produce goods, and pay out wages and dividends. Excess income can be saved, and borrowing can be used to finance investment. Governments tax both corporations and households, and is responsible for full employment growth.
Posted on: Thu, 19 Sep 2013 09:30:27 +0000
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