Why savers can’t have nice things: It’s all about time travel

604Whiny is the word that comes to mind when I think of savers. But that’s unfair. They can’t have nice things and that’s not nice. None of us can have nice things and the reason savers can’t have nice things are similar to the reason I can’t. It’s all about time travel.

Frances’ newsnight debut yesterday [watch it! This cuts straight to the panel] was all about savers. Savers are, understandably, annoyed. For a couple of decades they have been able to save cash in banks, they money has been perfectly safe and they’ve got a healthy return.

All that changed 5 years ago. First everyone thought they might lose everything. This gave well to a slow realisation that they were going to lose something, just less dramatically, slowly through inflation.

This has led to faintly ridiculous complaints from people like Save our Savers and others that savers are being “punished for a recession they didn’t create” or expropriated or swindled or denied a risk-free return by the malfeasance of central banks.

I want to make three points.

First, this is another example of those hard done by, but not the worst off getting the press and attention. If you’re sparing a thought for savers then you’ve a spare thought too many. Nobody likes to think of the pensioner having their savings eaten away, but lots of pensioners haven’t even got any savings.

Second, in no sense are savers being punished by central banks. They’re being helped as much as the rest of us (which is still not enough, of course). There is a scenario where savers get a large positive return following a depression. It’s called use, decay and obsolescence,

Without central bank support savers would get a bigger return…eventually. After banks collapse, firms go bust, machinery rusts and hands lie idle eventually we’ll begin to need to replace and rebuild. Once we hit rock bottom savers will receive a very handsome return. It’s just they might not have much of their savings left by the time we get there.

My third point is the most important.

The framing of saving is all wrong at the moment. Money allows us to move purchasing power through space. I make a coffee, you give me money which I use to buy a haircut. That all happens almost simultaneously. What if I want to make a coffee now and have a hair cut in 5 years? Well then I’d have to save up. Saving allows us to move purchasing power through time.

But saving isn’t just a thing you hold like money, it’s a process, and this is where the framing of saving needs to change. To move purchasing power through time you have to buy something now which will be worth something in the future which you can sell. It might look like the same £10 I end up spending on a future haircut, but it’s not.

Most saving ends up invested in structures, but some of it could be in intellectual property, a private business, or anything tangible. Cash doesn’t cut it. If you’re saving cash, you’re really lending money to a bank who then goes out and buys something with it. If you’re holding physical cash then someone else is doing this for you and you’re riding on their coattails.

You cannot escape the fact that you are buying something now, to sell in the future (minus some financial frictions)[1], this is the physical process behind financial saving. At most times, because we are getting richer we can buy durable stuff now and expect it to be worth more in the future. But that doesn’t hold during a depression or steep recession.

When times are hard we cannot expect people to get a good return. This is because more people want to buy safe assets now which pushes up their value, because the value of assets in the future becomes more uncertain (and hence less valuable) and because financial intermediation becomes less efficient at times of economic stress.

If we could travel through time this problem wouldn’t exist. I could make a coffee now and get my haircut in the future. Our alien barber from the year 3000 could come back, because coffee has been rendered extinct by global warming and we wouldn’t need to worry about saving or structures as above. But we can’t travel through time so we do need to think about how we physically save.

There’s no way savers can get a good return at the moment because the process which physically enables it is blocked. The best for everyone is for a reflationary central bank to boost demand and return to normality. We are the 99% and we have a shared interest in full employment.


[1] It’s this phrasing of saving and financial intermediation that eventually led me to stop being an obsequious leftie and to take FIRE seriously.

5 thoughts on “Why savers can’t have nice things: It’s all about time travel

  1. Completely agree – the fetishisation of savers is just standard ‘responsible, ordinary people’ stuff that takes a small subset of society who, guess what, are suffering from the recession, and places them above everyone else based on some vague moral judgements about how they are more worthy than everyone else.

    However, I’m not sure about this ‘lending the banks money’ idea. People just don’t see it that way and I’d feel too much like an economist if I were lecturing them on how they need to understand what’s going on better. It should at least be expected that people have somewhere safe to store money other than their mattress, though I agree that expecting a risk free return above inflation is a bit much.

    1. They irony with using the poor old ‘responsible, ordinary people/pensiorer’ as cover for increase rates to support rent seeking is that the same people who cry out refuse to use fiscal policy to help said poor old pensior.

      If my poor grandparents or retired father was going to depend on larger interest payments on their savings, fiscal policy could easily compensate them by just increasing their social security checks. Having the central bank target higher rates puts upward pressure on the government budget deficit due to debt servicing costs anyways.

      Sort of feels like those clamoring for higher rates on savings, but reduced budget deficits don’t see the inherent contradiction. Unless what they really want is increased rates on savings while simultaneously cutting other forms of spending which is a redistribution, right?

  2. Thanks. I agree the discussion is very moralistic in tone.

    With regard to not telling people what’s going on, http://www.metrosafe.co.uk/ will let you lease a pretty big safety deposity box for a few years at the equivelent of a small negative return, if savers really want their cash to be safe.

    More seriously though, lending banks money is a bit strong, they’re not just storing it for you, but they’re not behaving completely as thought it’s a loan. It’s annoying there’s not a word for it: deposit doesn’t quite cut it. Lorage. Stoan?

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