Economics filter: Can someone explain this article to me? How are capital accumulation, national savings, and consumption related?
Companies don’t necessarily make enough profit to fund capital purchases. Companies use offerings of debt or equity to raise capital. So they rely on investors for this. When the money is put into stocks or debt, all of it goes to the company for capital (assuming you’re buying stock from the company, and not just from another stockholder). When you buy a product, only a small percentage of that actually makes it back to the company as profit. Also, companies that are publicly traded would not make their stockholders happy if they reinvested all their profits in capital instead of paying out dividends. Yes, saving can hurt the GDP. That’s why Bush wanted everyone to spend like crazy after 9/11, to avert a recession. But without savings, you run into other problems – an insufficient pool of capital; the government has to look abroad to get people to buy its debt so China ends up owning US government debt instead of Americans; and people end up having to work their whole lives because th
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