Sunday, February 7, 2010
Invested Interests
This article talks about the state of Asian nations and how low growth might not be caused by the misconception that people in Asian nations save more than they consume. While it is true in China people largely save more than they consume, other countries seem to be the opposite. In fact, their consumption might be the problem. In underdeveloped countries it is better to invest than to consume (in order to promote economic growth). Consuming too much today causes the next generation to be poorer while investing will build infrastructure and depending on marginal product of capital make labor more efficient. This leads to more consumption in the future which, while not beneficial to us now, will eventually become valuable. The article concludes saying that while higher consumption suits the West's interests, more investment is in Asia's interest.
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The fact that Chinese people save more than consume maybe is more a cultural issue than is an economic issue. Afraid of turmoils in the future (and this fear derives from the turmoils in the modern history) and influenced by the Chinese cultural tradition, Chinese people always tend to save a large part of their income. Therefore, I think it is quite difficult for the government to stimulate consumption. But according to this article, since for Asian countries investment is better for the economy, maybe this "problem" in China is not really a "problem".
ReplyDeleteI totally agree with Keyi. The elder generation in China has gone through the terrible days of cultural revolution and the three years of natural disasters. These were days when most people were poor and had no money in hand. Experience shapes people's behaviors. Due to the fear of future distress, saving becomes a habit. Even though the life today in China is much more stable and prosperous, those old habits are hard to change in the elder generation. So it's natural and normal for them to save a large portion of their incomes into the bank. However, with the rise of the younger generation, i believe people will spend more and save less in the future. Partly because the younger generation has never experienced those days when people needed to save every penny they had, and they have a more global, international perspective of their lives.
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