First of all, you have to understand that "state where everybody is better off" is not something that's given. Everybody can be rational and still be worse off - prisoner's dilemma is a canonical example.
Economic fallacy there is, but it's in standard economic theory. Standard economics claims that only sensible things to do are investment and consumption, and considers savings to be a waste. But the savings are not waste for individual economic entities; savings are a way of gaining power in economics.
Let me give a couple examples, consider two companies, company A which saves (has large quantities of liquid capital), the other B which doesn't (and invests everything into machinery, better production, etc.).
First example: A stealthy startup appears with a completely new ("disruptive") technology. Company B cannot buy it, so the company A is at advantage.
Second example: Workers decide to strike for higher wages. Company A can survive the long strike by taking hit on it's monetary reserves, perhaps pay strikebreakers, etc. Company B cannot do anything and have to give in to the strikers demands.
In other words, savings are a way to break out of the market system, and so people do it and race who does it better, because they want power (which comes from ability to react). Economy as a whole suffers; but why should the winning actor care?
This is the typical principle agent problem, it depends of the ownership of the company. If it is privately hold, then savings make sense and you have to optimize for sustainability, i.e. otherwise your private savings are nilified. But if the company is widely spread by shareholders, then you have the maximize value by concentrating on one product, and leverage by keeping down the risk factor while still maintaining a high enough earnings on capital rate. The risk is adverted by the shareholders themselves that have their own portfolio of companies.
I think to say the economy as a whole suffers is too broad, and falls into the trap of people who really are advocating a consumption oriented society.
For instance, you could spend your money constantly hiring more employees to do more work and to grow.
Or you could save your money, until you have enough to build a new modern factory that produces the product much more efficiently. That efficiency lets you pay your fewer employees more, but overall lets the business grow more reliably.
In your example, Company A is better for the economy because it will last a lot longer than Company B.
Companies failing does more economic damage than a company saving its profits for several years.
Economic fallacy there is, but it's in standard economic theory. Standard economics claims that only sensible things to do are investment and consumption, and considers savings to be a waste. But the savings are not waste for individual economic entities; savings are a way of gaining power in economics.
Let me give a couple examples, consider two companies, company A which saves (has large quantities of liquid capital), the other B which doesn't (and invests everything into machinery, better production, etc.).
First example: A stealthy startup appears with a completely new ("disruptive") technology. Company B cannot buy it, so the company A is at advantage.
Second example: Workers decide to strike for higher wages. Company A can survive the long strike by taking hit on it's monetary reserves, perhaps pay strikebreakers, etc. Company B cannot do anything and have to give in to the strikers demands.
In other words, savings are a way to break out of the market system, and so people do it and race who does it better, because they want power (which comes from ability to react). Economy as a whole suffers; but why should the winning actor care?