Why Saving Matters More than Consumption

These changing years
They add to your confusion
And you need to hear
The time that told the truth
--Level 42

Nice little video explaining why it is saving, not consumption, that creates a vibrant economy over time. Yes, standard of living is higher when consumption increases. But consumption cannot occur unless goods are first produced. And production cannot significantly increase unless investments are made to improve productivity (more output per hour of labor).

Investment can only come from some fraction of production is set aside and is not consumed. The example shown in the video is that people who are making productivity-enhancing tools cannot simultaneously produce food to eat. Thus food must be set aside to feed the workers who are making the tools.

If such resources are not set aside (saved), then productivity and standard of living cannot be improved.

When savings decline, capital is consumed. Capital consumption is akin to killing the goose that lays the golden eggs.