Saving and Investment in US Economic Growth
22 Pages Posted: 24 Nov 2014
Date Written: November 11, 2014
Key economic concepts of saving and investment are defined and discussed in this paper. It is shown that the equation “saving=investment” is a fundamental fallacy of macroeconomics due to a confusion between real and financial variables, and also between stock and flow variables. Economic growth is shown to be driven by investment, not by consumption as Keynes would have it or by saving as Hayek would have it. The Keynesian fallacy of “saving=investment” in the national account has masked four decades of “borrowing and spending” in the US, leading to negative saving rates, accumulation of enormous debt, negative productivity and a stagnating economy.
Keywords: saving, investment, growth, scientific, macroeconomics
JEL Classification: A22, B22, B41, E12, E21, E23, H62, O11
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