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“The Gap Between Disaster and Prosperity”

by Alan Greenspan
Daily Reckoning

As far as your average American household is concerned, they would argue that they’re saving more than enough — or at least until recently they would have said that.

The reason [for that mind-set] is they’ve looked at their 401(k)s, and they’ve looked at the value of their homes, and they’ve looked at their assets generally — and while we economists may say that capital gains do not finance real capital investment and standards of living, the average household couldn’t care less.

When you think in terms of the economy as a whole, you have to realize that if the output of an economy — or in household terms, the amount of income [available] is all consumed, [then] we’re not accumulating the types of assets which we find productive over the years. Every advanced economy invests a significant amount of what it produces. It ploughs it back in the way of capital assets — meaning factories, equipment, all forms of capital — which essentially make the standard of living rise, because as technology and capital increase, an hour’s worth of effort on the part of a person has (over the generations) been increasing.

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