Friday, May 24, 2013
My letter to the NY Times re: The Keynesian War Against Saving
Re: A Keynesian Victory, But Austerity Stands Firm, by Eduardo Porter
Mr. Porter bases his Keynesian bias in favor of stimulus upon the fallacious concept that saving may be good for the individual but bad for the overall economy. This simple proposition illustrates the fundamental difference between the Keynesian and Austrian schools of economics. Fundamentally, Austrians are micro-economists; i.e., that all economics is conducted by individuals and macro aggregates have no life of their own. Therefore, what is good for the individual IS good for the "economy", because the individual IS the economy. Furthermore, Austrians understand that saving does not mean that no one spends. Saving means that real funds, representing real resources, are provided for business investment out of reduced current consumption. Not only do GDP statistics fail to capture the fact that over seventy percent of the economy is business-to-business transactions, but an economy cannot recover much less grow without real savings. Its capital base will shrink. We can party hearty now, but we will become impoverished in the future. To escape this fate, we must end monetary debasement and reduce government spending, taxes, and regulations.