If the income level is above a short period equilibrium level, its the lack of injections or rate of leakage that can be blamed for it dropping back to a lower equilibrium than someone would like to see ... but if its low propensity to consume because income recipients are trying hard to save, that does not work through a big "surplus of saving" working through a saving/investment market, it works through a drop in consumption directly leading to a drop in income.
Different propensities to save do not determine the aggregate saving level, it determines the distribution of the aggregate saving that occurs. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
Which is the chicken and which is the egg is largely irrelevant: The US could have stopped the process at any time by running a responsible economic policy that would have been in the best long-term interest of the US population. China and OPEC could have stopped the process at any time, but it is not obvious that it would have been in their interest to do so. If your chief rival is ruining his own economy through grossly irresponsible policies and paying you to aid him in the endeavour, why on Earth would you want to stop him?
It's kinda like building a navy full of big metal coffins battleships, going to war, getting your navy wiped out and then blaming China for selling you the steel to build the ships with in the first place.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
But absent the willingness to hand goods over in exchange for dollars, the US could not have sustained its trade deficit ... while given a willingness to hand goods over in exchange for dollars, the Chinese cannot help but accumulate "external saving", and the only question is in what form.
The reason that cause and effect is important is that efforts to change the outcome by modifying effects rather than causes will be as successful as trying to suppress a fever by breaking the thermometer.
If the US pursues policy to return its trade deficit to below its long term average growth rate, or China adopts a policy of demanding a larger share of products in return for products, the "saving glut" subsides precisely in line with the reduction of the systemic current account imbalance.
By contrast, China or the US attempt to directly halt the "accumulating of external saving" by China without changing the system current account imbalance, and all that can change is the form of the accumulation of external saving. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
