Industrial Insight

interesting… | August 10, 2010

http://alhambrainvestments.com/blog/2010/08/08/weekly-economic-and-market-review-21/

Weekly Economic and Market Review

Posted by Joseph Y. Calhoun, III

Here’s a thought experiment for all the Keynesian, paradox of thrift adherents out there. If the recession is due to a drop in investment (it is) and savings are required to fund investment (it is) how can a policy of limiting savings (the Keynesian emphasis on increasing aggregate demand) possibly be the solution to our problems? Won’t that just extend the amount of time it takes to accumulate the savings necessary to fund the investment we need to restore growth? Isn’t that exactly the real world evidence provided by the Great Depression and the current Great Recession? At a time when individuals obviously are content to defer consumption until sometime in the future, what gives politicians the right to spend money as fast as their constituents can save it?

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