I'd expect the savings rate to be lower in bad economic times. Many people have minimum amounts they must spend (food, shelter, etc.) whatever their income. If the numerator (spending) falls less than the denominator (income), the spending percentage increases and savings rate falls.

The real issue is lack of demand. Why confuse that message with information on the savings rate?

Can there be business cycles without variation in confidence? I think that essentially all economist agree that it is a major factor (Summers quotes Keynes). The critical thing is how to raise confidence. Many conservatives claim that the problem is uncertainty about taxation and regulation, but polls show that businessmen are not foreseeing good demand. Summers actually comes down strongly on the idea that demand is what needs to be increased; maybe Dean did not read the second page of the Op-Ed.

Bizarrely, many economists still think that lack of confidence about interest rates and inflation is a major factor, despite the absence of these things as areas of concern in polls (businessmen say it's demand, remember?). The idea that raising the inflation target would be beneficial amounts to claiming that businessmen and consumers are uncertain about whether increasing inflation at some time in the future will cause the Fed to react and raise interest rates (or take other action, which the Fed does rarely). The train of hypothetical reasoning involved here seems to be a result of wishful thinking about the power of the Fed; it is certainly not derived from any real data.

Demand for its products seems to be very strong and its CEO seems very confident about future sales and production. I have never heard him say that taxes or regulations diminish his confidence or would cause him to reduce production.

Republicans always claim to understand business and what it takes to increase growth and jobs, but I have never heard Mitt or Newt say that demand is critical or even important. Instead, it is always about taxes and regulations with them.

"The more obvious problem is that we simply lack a source of demand to replace the demand that had been generated by the housing bubble."

so the "problem of the economy" was masked by the "housing bubble" and "troubles" have been going on for some time

Aren't we still being flooded by Chinese dollars chasing American securities instead of purchasing US exports. That has got to be having an effect on interest rates, pushing them down, and incouraging new asset bubbles. Not sure where they are though, or what the effect is on our business climate. Or maybe those surpluses have gone away? Haven't seen much about them in the papers lately.

No one with any sense can look on this economy and feel confident. I'd describe that lack of confidence as a symptom of the problems, though, not the problem itself.

Summers is bringing out the confidence fairy again? What??

It's obvious from that released memo that he gives far too grand a weight to "animal spirits." I guess he hasn't learned yet. But, then, he's at Harvard and they hired Mankiw, so it's not too surprising to make other critical errors as well (and Summers is known to make some doozies). One wonders that someone so smart can also be so slow to recognize their errors and mistakes.

"The more obvious problem is that we simply lack a source of demand that had been generated by the housing bubble. "_ Dean Baker

The best way to replace this demand is to increase demand by decreasing the prices of consumer's goods and services, and thus increasing sales, and by there production and employment.

No, no, Gerry. We want to increase the prices of consumers' goods and services, thus increasing sales -- because we have an upward sloping AD curve, because we're in a LT -- and thereby increasing production and employment.

«The more obvious problem is that we simply lack a source of demand that had been generated by the housing bubble»

Amusingly this is the same starting point of many statements by Greenspan, who has been advocating rebuilding balance sheets to put more spending more in the hands of property owners.

I hope that DeanB is not so enthusiastic about generating more low/no tax capital gains for the wealthy as a way to boost demand back.

But if we clap loud enough, the confidence fairy will get all better and won't die! Then we'll have our recovery!

Perhaps you've seen my self-help video, "Get Confident, Stupid!"