S=Y-C-G, where S = national savings, Y= GNP, C = total household
consumption, and G = government purchases of goods and services.
"Lecture #1: Rough Notes on National Income Accounting and the Balance
of Payments" (Winter 2003)
http://www.uri.edu/artsci/ecn/mead/INT1/Mac/Intro/NI_ident.html.
Chronic deficits are a problem for nations because government must
compete with private business for capital. If deficits are
significant, they can cause insufficient capital to be made available
to private businesses and/or can cause interest rates to be higher
than they would otherwise be, thereby hampering economic growth.
Deficits tend to be chronic because politicians are rewarded by their
constituents for spending money on programs and lowering taxes and are
rarely punished for trading large budget deficits.
Off budget outlays create additional problems by effectively
understating the amount of the deficit, thereby preventing the public
from being concerned about it. Examples include the hole in the
Social Security trust fund, Medicare expenditures, and emergency
expenditures like the Iraq war. It is easier for politicians to put
off addressing long-term problems like Social Security when the future
outlays are not considered as part of the current budget deficit. As
a result, it is easier for politicians to create new programs like the
Medicare prescription drug program that will result in an even larger
prospective future deficit.
A variety of factors affect the savings of a nation. Whether or not
the government incentivizes savings can play an important role.
Cultural norms are hugely significant. Some countries have cultures
oriented around savings and others have cultures oriented around
consumption. Government taxation and spending policies also are
involved given that government budget surpluses and deficits add or
detract from a society's savings.
Sincerely,
Wonko |
