Why Saving Is Right and Economists Are Wrong

It seems rather obvious that during a downturn of the economy it would be natural for people to save more and spend less: They're uncertain about their jobs; the values of their homes have plummeted (about 30% since the peak in 2006); their stocks have declined, and their debts are high. Isn’t it common sense that people are doing the rational thing by saving? This is something our parents and grandparents understood well.

Yet Keynesian economists, the dominant economic theory today, tell us that consumers should be spending rather than saving. “Don’t you realize,” they say, “that 70% of our economy is based on consumer spending. Why do you think we have all that unemployment? We won’t recover until we can get people to starting buying stuff again!” Since we aren’t spending they've got the government to do our spending for us. Paying one man to dig a hole and paying another man to fill it is, under Keynesian theory, the path to recovery.

The plethora of stimuli by government fiat have created nothing more than the illusion of economic activity. They are attempts to disguise the chaos caused by political shenanigans.