Tuesday, November 11, 2008

Consumers Don't Cause Recessions (Bob Murphy)

Bob Murphy on the idiotic and dangerous Keynesian (or maybe "Krugmanian") notion that recessions result from the actions of consumers:

There's one saving grace about Paul Krugman's column at the New York Times: when an Austrian economist wants to explain how mainstream economics leads to ruin, he can always trust Krugman to set up the target in a clear, concise manner. This saves us a lot of work, because we don't have to first build up the position before knocking it down.

Even the casual reader of the financial press knows that it is dominated by Keynesian "demand-side" thinking. For example, during the debate over the stimulus checks earlier in the year, the main objection was that taxpayers might use some of their rebate to pay down credit card bills, rather than blowing the whole thing at the mall. But the reader will never see a careful, step-by-step exposition of the worldview that generates such crazy notions.

Enter Paul Krugman. In a recent piece, "When Consumers Capitulate," the newest Nobel laureate spells out the method behind the madness. Let's take the opportunity then to show just why this focus on consumer spending is not only mistaken but downright dangerous.

Read the rest

No comments: