I am currently trying to integrate some of the key ideas of three economics professors whose work I greatly admire: Mushtaq Khan of SOAS, Anwar Shaikh of the New School, and Michael Pettis of Peking University.
Individually I have found their work to be enlightening and inspiring. On issues of the capitalist economy, development, industrial policy and the causes of the Global Financial Crisis, I feel that a degree of synthesis is possible. I hope to develop this in the New Year.
Following on from my last post, here is a slightly different take on the determination of national savings from Michael Pettis. Although savings are not identical with the ‘surplus’ of classical economics which is available for investment, there is clearly a substantial overlap. The key to economic prosperity is productive investment and this requires an economic surplus or savings to fund it. Here Pettis describes how national savings are not so much determined by individuals or culture but by policies and institutions at home and abroad. Thus they are more a macro than a micro phenomenon.
“A country’s savings level is not only or even primarily a function of domestic cultural and personal preferences. Savings rates, especially in countries with abnormally high or low levels of savings, are almost always determined by policies and institutional constraints that affect the relationship between consumption levels and GDP.
For relatively open economies, national savings rates are a function not just of domestic policies and institutional constraints but also, and very importantly, of foreign policies and institutional constraints. A low savings rate at home for an open economy is as likely to be caused by conditions that force up consumption at home as by conditions that force up savings abroad.”
Michael Pettis (2013), The Great Rebalancing, Ch.9, p.178