Academic economics focuses on consumption smoothing as the main savings motive, overlooking other drivers like inheritance, status, and power.
The Academic Approach to Savings
Academic economics pays surprisingly little attention to the motives that drive saving behaviors. For macroeconomists, the primary focus remains consumption smoothing – maintaining a consistent standard of living throughout one’s lifetime.
The Core Assumption in Economic Models
This assumption about consumption smoothing is embedded in the foundation of nearly all macroeconomic models, from those analyzing GDP growth to those providing monetary policy recommendations.
Overlooked Motives for Saving
Economics tends to overlook various other reasons people save, including the desire to leave an inheritance, the social status provided by wealth, and the power that comes from possessing assets.