Money For the Rest of Us

How the Economy Really Works: Savings, Investing, Consuming and Market Distortions

Mar 13, 2024

Learn about the economic engine's coordination between savers, investors, consumers, and more. Discover how hoarding and unfair competition lead to economic distortions. Explore the paradox of thrift, borrowing's impact on income, and examples of market distortions like planned obsolescence.

27:01

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Quick takeaways

Spending equals income in the economy; saving impacts overall income through the paradox of thrift.

Debt stimulates economic activity by allowing future savings to be spent today and impacts spending and investments.

Deep dives

Understanding the Link between Spending and Income

Spending in the economy equals income as every dollar spent is someone else's income. The dollar we save is income less spending. Personal savings are illustrated by spending less than the income received. The paradox of thrift emerges when increased saving leads to decreased spending, impacting overall income.

Introduction

4min

Savings, Borrowing, and Economic Growth

5min

Debt Issuance, Central Banks, and Trade Balance Impact

6min

The Interplay Between Spending, Saving, and Production in the Economy

3min

Understanding Investment Vehicles and Market Distortions

9min

Exploring Market Distortions and Economic Dynamics

4min

A primer on how the economic engine works through coordination between savers, investors, consumers, producers, governments and banks. How hoarding and unfair competition can lead to economic distortions.

Topics covered include:

How spending and saving are connected including the paradox of thrift
How borrowing money can lead to higher income and savings and potentially to bubbles
How hoarding differs from investing and why too much hoarding can deprive businesses of capital
How lightbulbs, grocery stores, and kitchen appliances could be examples of unfair competition and planned obsolescence.
What role do we play as participants in this coordinated economic dance?

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Show Notes

Wait, Is Saving Good or Bad? The Paradox of Thrift—The Federal Reserve Bank of St. Louis

Rents: How Marketing Causes Inequality by Gerrit De Geest—Beccaria Books

FTC Challenges Kroger’s Acquisition of Albertsons—Federal Trade Commission