For that, you need honest, sound money.
Saving doesn't always mean saving money but rather saving value. If you own your house and land outright, would you not consider that "savings"? What about government bonds? Corporate bonds? Fixed-incomes? Dividend bearing stocks? Growth stocks? All of that is savings. Cash in a mattress is an unproductive asset, it's a waste of potential. An account at a bank that lends and kicks some back to you may be the most productive allocation in some circumstances but overwhelmingly it isn't. Money is only valuable when it moves.
Well, this is the crux of the issue. In the language I learned (British English) the word savings does refer exclusively to cash. Investment is an entirely separate concept, as are assets. I would never consider a house to be savings, because savings are there to provide a buffer if your income suddenly drops below your structural spending level - the proverbial rainy day. Selling a house takes a very long time and has huge overheads, plus, of course, you still need somewhere to live.
Unless your first reaction to e.g. losing a job is to immediately sell your house, your house is therefore not savings.
Government bonds? Great until they default.
Corporate bonds? Ditto.
Growth stocks?!?! The things that can easily move in value 20% in a single day? That's not savings, that's an investment at best or a risky gamble at worst.
Money is only valuable when it moves.
No, money is a store of value, that's literally a part of the definition of what makes something money. It is valuable because it lets you obtain resources later, without having to barter for them at that exact moment.
Money saved means you can lose your job and continue to buy things: that fact alone has value even if the money itself isn't moving right now. This really isn't hard to understand.
The demonisation of savings in our society is one of the most severe problems we face, if not the most severe. It's impossible to have any kind of justice or stability in the world if nobody has any savings, because they convinced themselves a tech stock is the same thing.
Nobody owes you a risk-free positive return. If investors don't need your money, then they don't need your money. Money is only a store of value over short time periods (and if inflation is high not even then). Money only has value because you can get it today and use it in transactions tomorrow. If you take that money and stick it in a mattress for a year, nobody owes anything for doing so.
Not according to Merriam Webster - https://www.merriam-webster.com/dictionary/money Nor the OED - https://www.lexico.com/en/definition/money Nor Collins - https://www.collinsdictionary.com/dictionary/english/money
In fact that little factoid you present is a hallmark of Austrian economic thinking and usually cryptocurrency enthusiasm...
To an extent, you are right. Here in the US, anyway. But it is possible to go too far in the other direction as well.
If all of your disposable money is going into savings, you have no need to borrow money, so the bank isn't making loans, so the interest rate you receive has to fall. More importantly, if you are not spending money, the people you aren't buying from have no incentive to invest. The result is a stagnant economy.
Saving too much is almost as bad as saving too little.
That is, if you judge an economy purely on the basis of "how much stuff is getting done" without caring about what that stuff is, or whether it's actually useful, then yes confiscating savings and making it impossible to actually keep stable money anywhere (which is actually called "economic stimulus"), well, it will appear to make your economy more dynamic. If you start taking into account economic stability though, well, the highs and lows of boom/bust QE-driven economics don't look so great.
So there's really no such thing as saving too much. How much to save is a very personal decision. If you over-save it means lost opportunities, unless you deliberately want to pass your wealth onto your children. But if you save too little, the results can be catastrophic unless the government bails you out, which creates the massive moral hazard that wrecks our global economy today.
Remember the categorical imperative: "Act only according to that maxim whereby you can, at the same time, will that it should become a universal law."
¹ Beyond a point anyway. Keep 3 to 6 months' income readily available.
People should not be forced to go further out on the risk spectrum than they want to by government policy (which is what you are suggesting by saying that we shouldn't have what economists call sound money). Forcing them to do that distorts the economy. People should buy bonds because they think the extra risk is justified, not because there is no alternative.
The lever that policy has is interest rates, and by lowering it even more, it forces savers to adjust their view on risk - if they can handle the lowered interest because their risk tolerance is so low that they cant buy bonds or anything, then they will need to suffer the low rates.
It's just that a lot of people are in the situation where they cannot take on any risk with their savings. Historiaclly, banks being risk free is just a gimmick (even if the gov't is insuring the deposit). Banks's risks are diversified, and minimized. But if the economy is doing poorly, they cannot magically produce the low risk returns.
I think the only way forward is actually gov't spending sprees - invest in long term projects, like 100 year long projects, and make these projects the backbone of fiscal policy (print money, if needed). Long term projects that can derive value for all of society, such as establishing bases on moon/mars, mining asteroids, etc.
At this point, even high-quality corporate bonds are going negative in Europe, so people who want to save have to take a big risk.
In my opinion that is unnatural; it's a creation of central planners who forced everyone away from gold and into fiat currencies.
Gold is pretty risky now because it's not actually used as a currency and thus has low liquidity. If we all used gold as a currency, it would have high liquidity and it would be very stable. (I don't want to go back to gold because digital currency is far more practical, but I'm just making a historical point.)
> I think the only way forward is actually gov't spending sprees
That is going further in the direction of central planning and also further inhibits regular people from saving and investing safely and wisely. How is the middle class going to save and invest under this paradigm? I think the most likely answer is that they won't/can't, and the middle class disappears (like what happens with hyperinflation, e.g. Weimar Germany).
A recurring theme: I am really against central planning. The planners do not always get it right, and when they screw up big time, it makes the system collapse. When people are free to make their own choices the economy adjusts dynamically.
However, there is no sound money right now. Bitcoin was designed to be sound money in theory, but it has to get a lot more liquidity first. Gold once was sound money, but also would need a lot more liquidity to be sound money once again. So we just have to wait. I'm not suggesting that we force it.
Fiat money seems destined to eventually collapse. There is a long road, but every time fiat money stumbles, it will be a little victory for alternatives. Investors have been fleeing into gold lately. Wealthy Chinese people have been fleeing into bitcoin to at least some small extent.
The middle class didn't disappear because of Weimar. (It was a mixed bag, because the hyperinflation wiped out a lot of debts.) They disappeared because of the Great Depression. Sound money caused that.
I don't agree at all. But let's wait and see. That is a risk I'm happy to take. Sound money is honest money. A system that can't survive sound money is an unsound system.
Anyway, we probably disagree on the definition of 'capitalism.' We don't have capitalism now, we have a mixed economy with partial capitalism.
> the Great Depression. Sound money caused that.
I completely disagree. This is but one theory, and I don't think it's a good one.
> It was a mixed bag, because the hyperinflation wiped out a lot of debts.
Hyperinflation = no debts, but also no savings. So only the very wealthy with large portfolios in real estate or industry could survive financially. Everyone else reduced to poverty. (Granted, I'm no expert on Weimar history, so if that's not exactly accurate, I welcome corrections.)
The German economy recovered from hyperinflation, and was booming by the end of the twenties, only to be taken down by the Great Depression. Under Hitler, they abandoned the gold standard, and their economy recovered.
At least it's better than putting money in an index ETF, because bankers making loans do actually contribute to the capital allocation process in a meaningful way.
What you're not doing is provide capital to companies or contribute to the information processing that makes markets efficient (at least not very much).
Crucially, bank loans (as well as IPOs, rights issues and bond issues) provide capital. Trading existing stocks doesn't.
So when it comes to capital allocation, you're not picking winners and losers by buying an index ETF, because no capital is created at all.