Filed Under: Anything Peaceful
Tags: Henry Hazlitt • Investment • Keynes • Paul Krugman • recession • Saving
So Now Saving Is Bad
Keynes is back! Unfortunately. If you want to make sense of most of the reporting and commentary on the econony these days, you have to realize that most reporters and commentators and politicians are working from the Keynesian position that, as Paul Krugman puts it, “[I]ndividual virtue can be public vice… attempts by consumers to do the right thing by saving more can leave everyone worse off.” This is Keynes’s so-called “Paradox of Thrift.”America’s notorious under-savers are now destructive over-savers!In other words, now is a good time to re-read the solid critiques of Keynes, many of which are to be found in our Freeman archive. You will find a few here, here, and here. And don’t miss Henry Hazlitt’s chapter “The Assault on Saving” in Economics in One Lesson, online here.
Comment by Jim Davidson on 14 November 2008:
Keynes is dead. It is clearly some sort of ghoul of Keynes that has returned and now walks the Earth. Let’s do some research and find a way to drive a stake through this creature’s heart, for the last time!
Comment by Bill Green on 18 November 2008:
It seems obvious that saving is not bad for the economy, but I have been bothered by something about Keynes:Let’s say that people start hoarding money (not saving), according to Keynes logic, then the the feedback loop of lower consumption-lower employment-lower consumption-lower employment would cause employment to drop to zero in a finite period of time. It seems clear that this does not happen, though people do hoard money (through buying gold, for example). That means that something is fundamentally wrong with Kynes logic about the feedback loop, but I can’t figure out where the problem lies.I tried imagining the employment level going to zero. In such a case, the economy would presumably be rebuilt from scratch as individuals began to trade again and innovate, etc. Then I wondered why this could not happen in teh midst of the decline. But it’s still not clear to me.Any input would be more than welcome.