[warrenm]

The savings vs spending views were demonstrated beautifully in the 80s and 90s with the Asian crash: east Asian nations, as a whole, are savers, whereas western nations, as a whole, are spenders.

But due to international demand - especially on Japanese production) - in the 80s and early 90s, those nations didn't spend on infrastructural improvements (factories running at 95-100% capacity (sometimes bursting even higher), so when they inevitably had to spend on capital improvement (expansion, new tooling, etc), they had to take production lines offline, which led to production drops, which led to their economy crashing.

"Spend" and "save" (where "save" is a mix of capital investment and so-call "rainy day funds", and "spend" is consumerism) are far too often viewed as independent factors, when they rely on each other being in balance to keep the economy working well.

When an economy spends everything it has (or more - which happens with credit that is too easy to come by), and forgets to plan ahead, it crashes in predictable cycles.

When an economy saves "too much", it never grows (or crashes due to having too much capital investment and not enough demand).

The US' coming out of the Great Depression - largely due to WWII production - was a giant case study on this: factories, production lines, and employable people were massively under utilized, so when demand was created (by gearing up for war), all those people and production factors were "available" to be used. In other words, they had been "saved" (from the economy's point of view) for a decade instead of "spent" (again, from the economy's point of view).

This is part of why there is a "healthy unemployment" value that economists toss around ... generally in the range of 4-6%. Those "saved" resources (human capital, in this case) are available to be "spent" when needed.

If you run at an unemployment level (regardless of whether that "employment" is production capacity, personnel, funding, etc), that is too low OR too high, you run into boom-bust cycles.

That's what central banks try to regulate (albeit not very well, when viewed in the long term).

[pjc50]

> This is part of why there is a "healthy unemployment" value that economists toss around ... generally in the range of 4-6%. Those "saved" resources (human capital, in this case) are available to be "spent" when needed.

> If you run at an unemployment level (regardless of whether that "employment" is production capacity, personnel, funding, etc), that is too low OR too high, you run into boom-bust cycles.

I don't think this is a good summary of the theory - it's recognised that reaching the limits of capacity causes inflation, but no mainstream economist would refer to unemployment as a form of saving. Labour is a "wasting" good; you either spend a day or waste a day, you can't save up time while unemployed and spend it later.

Economists prefer a minimum level of unemployment because it effectively prevents labour organisation being used to drive up wages.

[warrenm]

>you either spend a day or waste a day, you can't save up time while unemployed and spend it later

Except human capital is, from the economy's point of view, like money in your bank account: if you have none to spare, you cannot absorb increases in demand (to personalize it, say you have $100 per month for gasoline - if the price doubles, you can buy half as much for the same money .. you have no cushion to absorb that change).

Just about every economist I've read over the last 20+ years (ranging from the 1700s to now) agrees there, more or less - regardless of the school they adhere to: if you're operating with no margin of error, you experience the booms and busts less well than if you have a margin.

Unemployment is a form of margin in this context. Say there's 100,000 employable people, but 5,000 of them are unemployed. When demand for labor spikes by anything less than 6%, there is an "instant" buffer to bring onboard while new employable labor is "spun-up" (via training, growing old enough to work, etc).

>Economists prefer a minimum level of unemployment because it effectively prevents labour organisation being used to drive up wages.

Pretty sure you have that backwards: the lower the unemployment, the more wages are likely to rise. If your unemployment is too high, wages will fall (or remain stagnant).

[stinkytaco]

I think this argument ignores other large factors in both of those cycles, namely demographics. Japan went into a demographic spiral with an aging workforce and not enough labor capacity to replace them. Decreased demand, as well as the factors you discuss, made outsourcing more appealing. The opposite is true post WWII. There was heavy investment in production infrastructure due to the war, but we're also looking at one of the few times in human history where labor was more in demand than capital. Add to this the rapid advance in technology which allowed goods -- and labor -- to spread more widely, or to even eliminate human labor, and you have a complicated soup of problems.

I don't think either the Keynesians or the Austrians can really claim a victory in those examples because external factors played a large role.

[monksy]

Wouldn't a low unemployment level be good as that the workers are currently developing/using their skills? Wouldn't that be a positive net effect on society as that there are less individuals who need social services and causing crime due to boredom?

[RobertoG]

On society maybe, but lower unemployment creates competition for labour and that create more profits going to labour instead of capital.

[warrenm]

It's "good" in that fewer societal services may be needed.

It's "bad" because there's no buffer to absorb increase in demand of production and service creation