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03/25/2010

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John Hemington

So Dave, being the pure observer and teller of truth you are, one should be willing to draw the obvious conclusion, there is no correct policy and therefore no hope, in somewhat stronger terms. Increased saving will destroy the economy in the short run and increased spending will destroy it in the long run. I suppose it's somewhat similar to asking, "would you rather die now or later"? The easy answer is, of course, later. But when referring to the possibility of societal collapse, it's a somewhat more difficult call to make. If a solution to the crisis is possible are we better off to crash the economy sooner rather than later? If it is not possible, as you seem to imply, does any of this matter at all? Just wondering.

You are correct in stating that virtually all of the talking heads in the economics trade have no clue relative to the reality of the situation on the ground; but, on the other hand, someone needs to explain it to the world with clear conclusions and realistic forecasts of what is to come. The finger in the dike theories of people like Krugman do not appear to be particularly worse than those who suggest that we can somehow save (deleverage) our way out of trouble. What is missing is some sort of miraculous savior which can spend to keep people working while they pay off their outrageous levels of personal and national debt. Unfortunately the Axial Age has past and miracles happen far less frequently these days.

KJMClark

Americans should have been trying to save money over the past decade, except for recessions. Americans should be saving money again when the economy is thoroughly out of recession. Our problems are three-fold: 1) we've forgotten the lessons of the grasshopper and the ants or seven years of feast/seven years of famine, 2) too much of the income that could be saved is being siphoned off by the wealthy (who have been saving just fine, thank you), and 3) incentives to save are being in part damaged by a mercantilist policy of the Chinese government to shift jobs from America to China via exchange rates.

Really the lesson we're all supposed to have learned is you save when the sun is shining, so you'll have those savings to fall back on for rainy days. That doesn't fit well with consumerism, so advertisers have done their best to make people forget that lesson. They encouraged people to gorge while the gorging was good. The flip side of that is that when times are bad, you're supposed to dis-save. That has *always* been the lesson; you're not supposed to save all the grain during the seven years of famine, you're supposed to eat it, while saving enough to plant again when conditions get better. What's the point of saving the grain only to starve to death and have someone else take it?

Krugman is just pointing out that this is a depression, and people aren't supposed to be increasing their savings during a depression. That's like people adding to their food stockpiles during a famine, while watching their friends, neighbors, and relatives starve. It may seem rational to let your co-workers starve, but don't expect their help during the next harvest. The time to save is when there's excess.

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