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Home Publications Blogs Beat the Press Economists Who Understand the Economy Are Not "hoping that households will soon borrow more and help sustain the recovery"

Economists Who Understand the Economy Are Not "hoping that households will soon borrow more and help sustain the recovery"

Tuesday, 08 June 2010 04:54
In a short piece on consumer borrowing the Washington Post told readers that: "economists are hoping that households will soon borrow more and help sustain the recovery." This may be true of the economists who Post reporters rely upon as sources, but it is not true of economists in general. Most households, including those at the edge of retirement have very little savings. With deficit hawks like the Washington Post editors and news reporters insisting on the need to cut Social Security and Medicare, it would be very unfortunate if these households did not increase saving and reduce their current consumption. The economists cited by the Post must want these people to live in or near poverty in their old age.
Comments (13)Add Comment
written by izzatzo, June 08, 2010 9:52
Ok, so which is it, the paradox of thrift is necessary due to no savings in the first place, which reduces consumption and is offset by government spending to maintain aggregate demand, or the paradox of thrift is an aggregate market failure which can be offset by more consumption based on borrowing, despite the lack of savings. Whose causing the failure, consumers not spending or lenders not lending?
Economics is a discredited profession
written by Jesse, June 08, 2010 11:00
Or perhaps Hunter Thompson expressed it best, "the downward spiral of dumbness."

This sort of deterioration of thought often precedes a renaissance, so perhaps we can look forward to a new school of economic thought that is based on reality, as the neo-liberal economics dwindles into irrelevancy.
written by fuller schmidt, June 08, 2010 11:29
The Caveman Right longs for the early days of the US when many workers had no money or income. Retirement then was a simpler early old age. Fortunately attractive women prefer non-violence.
written by PeonInChief, June 08, 2010 11:32
This isn't funny, exactly, but it is fun to watch the powers what be try to get people to spend even though they don't have any money. If they can just get us to run up our credit cards and then refinance the house to pay them off. Oh, that's right, been there, done that.
Paradox of thift
written by Tortoise, June 08, 2010 2:52
When a family saves more, they are doing the right thing (long and short term) for themselves but the wrong thing (in the short term) for the economy. Oh well, it is clear that the poorer families must somehow raise their savings rate and the last thing they need is to borrow in order to consume; the economy better find another way to grow.
written by Queen of Sheba, June 08, 2010 8:47
These "economists" the Post keeps referring to are going to have to divest themselves of the accepted wisdom that the U.S. economy will always be driven by consumer spending - that consumer spending will account for 60-70% of the economy. Times have changed. There's a new game in town, and it won't be based on credit-driven spending by the general public, who are hunkered down and spending no more than they have to. If the adherents of the trickle-down theory really believe what they've been preaching all these years, they had better start depending on their own fat bank and hedge fund accounts to set the economy in motion again, because they didn't allow enough of the wealth they've been amassing for the past 30 years to trickle down to the rest of us. We're tapped out.
Supreme Commander
written by steelhead23, June 09, 2010 11:40
Verk, verk hard you fools. Das Fatterlandt needs you. We have passed Max Weber's linking of Calvinism to Capitalism into a Brave New World that turns Calvin inside out glorifies consumption and proudly proclaims that borrowing to support excessive consumption is virtuous. I say, let the banks spend like fools and the working stiffs avoid debt like the plague and true virtue will emerge.
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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.