Common sense & its discontents

Keynes: “In the long run, we are all dead”

Average person: “…and I’d like the cause of death to not be starvation”:

Households pushed their savings rate to the highest level in more than 15 years in May as a big boost in incomes from the government’s stimulus program was devoted more to bolstering nest eggs than increased spending.

The higher savings rate is healthy in the long term, economists said. But without vigorous consumer spending, the government may have to do more to revive the economy, possibly through further tax breaks and spending. […] The savings rate, which was hovering near zero in early 2008, surged to 6.9 percent, the highest level since December 1993.

“What?  People are saving money in preparation for leaner times instead of buying iPhones?  Disaster!!!”

All you had to do to figure out the problem with “stimulus” was consider why spending cratered in the first place: the economic status quo of consumption beyond boundaries of reason ran into the brick wall of “Hah!  Now you have NO money!  Take THAT!”.  When people are in fear of going broke, when they do have extra money the rational thing to do is keep it, because for all you know you might need it later.  This is only read as troubling if ones concept of the economy is that spending at all costs is key & damn the future.

People will spend again when it doesn’t look like a bad idea to do so.  Saying the economy won’t get better until it gets better sounds like mere crankery, but it has actual meaning, in that “better” in the first case refers to a healthy level of activity.  It’s the latter definition — the economy structurally making some kind of sense, so people can rationally participate — that is the hard part.  Savings is creeping up, fulfilling the piss-off-Paul-Krugman part of the recipe, the rest is yet to come.

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About b-psycho

Left-libertarian blogger & occasional musician.
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