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2010-04-29

Savings, consumption and investment, as well as external balance

Comments on Mohamed Ariff “Asia’s obligations in the new order”, 28/04/2010, http://www.eastasiaforum.org/2010/04/28/asias-obligations-in-the-new-order/

Statements like the following are misleading and unhelpful, because they ignore the role investment in the saving equation:
"East Asia needs to consume more and save less, just as the US needs to consume less and save more, which means that the US and East Asia need to export more and import more, respectively."

It is highly questionable and likely to be illogic and pointless to force any person to consume more and save less, if that person has pursued his own welfare and be optimal in terms of decisions on saving, consumption AS WELL AS investment.

The so called external imbalances are not necessarily caused by savings, or consumption, because investment can play a balancing role, in another word, can "rebalance" the external "imbalance", without affecting internal savings and consumption.

It is a simple matter of analysis, isn't it?

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