Does Ritchie actually know any Keynesian economics?

Output is growing: I won’t deny it if that’s what the ONS says. But a boost in growth based on the household savings rate falling, business re-stocking after a period of such low confidence, …… is not a sustainable recovery. It is structural recovery, but the structure is all wrong.

Isn\’t that just fascinating. Keynes went on about how when you\’re in a recession then the last thing you want anyone to be doing is saving. In fact, the aim of economic policy should be to get people to dissave: to get the money out there and working in the economy not languishing around in savings accounts. This will increase business confidence, lead to restocking and we thus boost the economy up to a better and higher equilibrium state than we had when everyone was just sitting on their money.

So now Ritchie, one of the country\’s leading economists as we all agree, tells us that Keynes had it all wrong. Declining household savings is just terrible as it increases business confidence and leads to restocking…..or maybe Ritchie\’s not really grasped what Keynes was in fact saying?

9 thoughts on “Does Ritchie actually know any Keynesian economics?”

  1. So far as I can tell, most Keynesians these days don’t really know what Keynes actually said, and they aren’t really Keynesians. Economics has really devovled into a set of assumptions and rules of thumb which are contradictory.

    I think the Keynesian theory was wrong; but it is at least internally consistent. What comes out of statist economists these days is just a set of personal opinions.

    Keynes was absolutely clear; at times like this you want the highest possible Propensity To Consume. As Tim says.

    Which is actually why being “pseudo-Keynesian” by giving money to banks and asking them to lend it is a very bad idea. What you really want to do is drop it from helicopters, traditiaonlly by employing proletarians to build infrastructure, because they’ll rush out and consume the money on beer and skittles.

    The current strategy is to funnel the money to people who’ve got loads already, and whose MPC is thus very low.

  2. Maybe Richie’s not the only one not to understand Keynes. Bloody confuses me.

    “the aim of economic policy should be to get people to dissave: to get the money out there and working in the economy not languishing around in savings accounts.”

    Where’s the money supposed to be? Wads of notes in a cupboard? (Not even sure if that’d work) Money isn’t a something. it just represents something. Money supposedly ‘in’ savings accounts isn’t ‘in’ anywhere. One person’s savings have to be another person’s debt. It’s already been spent. S’pose you could argue money saved with the government has just evaporated because they’re the buggers who print the stuff, but then they don’t need to encourage dissaving. They can just print it.

    Beats me! What am I missing?

  3. I am among those who doesn’t really know what Keynes wrote, although from what little I know of him I am not sure that his prescription would be for already heavily indebted households to take on more debt (although he might like net savers to spend, it’s not clear from a falling aggregate household savings rate whether that’s happening, or whether its borrowers borrowing more), I think he rather focussed on the government stepping up to spend when the private sector is having to sort its balance sheet out by saving.

  4. Bare in mind that Keynes was writing at a time when consumer debt, particularly among the proles, was very low. No credit cards, no HP even. And you didn’t need to mortgage your grandchildren to buy a broom cupboard.

  5. Heavens forfend that Murphy actually got something right but IF the recovery *was* just based on business re-stocking it wouldn’t be a sustainable one, because once stocks had returned to a normal level production would drop once again.
    However, we need not all faint with shock – Murphy is wrong as usual because the growth in services *cannot* be a result of restocking (how does one re-stock services? give an aging hippy a short-back-and-sides and tell him that’s a year’s haircuts?); UK Construction is at a 3-year high – that isn’t restocking; Retail Sales up – that can’t be; and all manufacturing sectors showed a rise including food processing where stockbuilding has got to be insignificant.
    It isn’t just economics that Murphy has got wrong but the basic facts.

  6. Actually Ritchie himself is on record as saying he doesn’t see the value in saving – oh yes you are Richard. So I am very perplexed by his comments this morning.

    On the other hand, he is pretty consistent in knowing on which side his bread is buttered and he is bought and paid for by Unite and the PCS, so he knows his job is to find this growth terminally unbalanced etc.

  7. All this ‘dissaving’ stuff – isn’t it just rooting in a time where ‘money’ was actual notes and coins, and thus by saving them you were preventing them from circulating in the economy at all? Whereas now virtually 100% of savings is electronic – numbers on a statement, and thus has already disappeared into the maw of the financial system, lent out somewhere and being spent anyway? I mean if everyone who has savings in banks wanted them all out now to spend the banks couldn’t pay up, right, as they’ve already given it to someone else? Thereby showing that savings in a fiat debt money system are not denying other people the use of the money, its all just numbers on balance sheets.

  8. Taking up BIS and Jim’s point – yes, where do the savings go? Unless the banks are literally (in the true sense) sitting on vast wads of twenties.

    If the private sector (both individuals and companies) is collectively saving more than it’s borrowing, then is the government the borrower of last resort? So it borrows because there is no one else left to lend to. It has no choice (though it can offer low or negative rates).

    If that explanation is right, then there’s no point arguing about whether the govt should borrow and spend – it has no choice, whether you agree with K***** or not.

    Sure I’ve missed something, but as others have asked, where does the money go?

  9. I am not sure that his prescription would be for already heavily indebted households to take on more debt

    Luis: is this very fair? If Keynes wants to play macro, then surely he’s got to stay macro. It’s no good saying we need an expansion of credit and then complaining when it goes to the “wrong” people. If you think it’s about the distributions, then you need to do microeconomic analysis and forget about the aggregates.

    It’s one of the reasons I dislike macro so much: because nobody is happy to say “We need to expand credit but I am indifferent as to what way.” People always want to tinker with the distribution, which makes me suspect that they don’t really believe the story about aggregates anywhere nearly as well as they claim.

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