Meaning: The quote by Martin Feldstein, an influential economist, touches upon the relationship between saving, investment, and economic growth. It highlights the importance of sustained high levels of saving in facilitating long-term business investment and ultimately contributing to the growth of output.

Saving, in economic terms, refers to the portion of income that is not consumed and is instead set aside for future use. This can take the form of deposits in savings accounts, investments in financial assets, or other means of storing wealth. The act of saving is crucial for individuals, businesses, and governments as it provides a financial buffer for unexpected expenses, future consumption, and investment in productive assets.

Feldstein's quote emphasizes that a rise in saving can have a temporary dampening effect on aggregate economic activity. When individuals or businesses increase their saving, it means they are consuming less, which can lead to a decrease in overall demand for goods and services. This, in turn, can temporarily slow down economic activity, as businesses may see reduced sales and lower production levels.

However, Feldstein notes that it is only when saving levels are sustained at a high level that they can facilitate a corresponding sustained high level of business investment. This is a critical point, as business investment is a key driver of long-term economic growth. When businesses have access to a pool of savings, they can use these funds to invest in new technologies, expand their operations, and undertake projects that contribute to productivity and output growth.

In essence, the quote underscores the importance of a stable and consistent saving behavior in fostering an environment conducive to long-term business investment. It suggests that short-term fluctuations in saving levels may have transitory effects on economic activity, but it is the sustained accumulation of savings that lays the groundwork for robust and sustained business investment.

From a macroeconomic perspective, sustained high levels of saving can also have broader implications for the economy. When a significant portion of income is saved rather than immediately spent, it contributes to the availability of funds within the financial system. These funds can then be channeled into productive investments, such as infrastructure projects, research and development, and capital formation, all of which are essential for driving economic growth over the long term.

Furthermore, sustained high levels of saving can also lead to lower interest rates, as the increased availability of funds for lending can reduce the cost of borrowing. Lower interest rates can incentivize businesses to undertake more investment projects, as the cost of financing such endeavors becomes more affordable. This, in turn, can spur additional economic activity and contribute to long-run growth.

In summary, Martin Feldstein's quote encapsulates the idea that while an increase in saving may have short-term effects on economic activity, it is the sustained high level of saving that paves the way for sustained high levels of business investment. This, in turn, plays a crucial role in fostering long-term economic growth and output expansion. By highlighting the interplay between saving, investment, and economic development, the quote offers valuable insights into the dynamics of macroeconomic stability and long-run prosperity.