McKonly & Asbury has launched a new blog – McKonomics: McKonly & Asbury’s Economic Growth and Recovery Update. This blog will feature podcasts and critical information on The New Economy, Economic Stimulus, Tax Policy changes, and other economic data you need to know. The McKonomics Blog currently highlights information on Stimulus Funds and our first McKonomics Podcast – “The Paradox of Thrift and The New Normal”.
In the first McKonomics Podcast, I interview Scott Ehrig, Vice President & State Investment Manager at M&T Investment Group, who discusses how we got where we are in this economy. Click here to learn about the "Paradox of Thrift", and how changes in consumer savings patterns affect the economy by hundreds of billions of dollars, and explore what the "New Normal" will look like as we search for the upside in the coming months.
The McKonomics Podcast Series will continue with in-depth looks at industries like Manufacturing and Construction as I interview experts in the fields that affect our economy the most.
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Hi Scott,
I respectfully dissent. There's another view out there. This analysis is classic Keynesian, explicitly assuming that consumer spending drives the economy, and either consumers save too little or too much. But savings aren’t stuffed in a mattress, they’re put to work in the economy in the form of loans, credit, etc. One wonders what the optimal level of savings is under this logic? That question can only be answered one person at a time. A medical student is dissaving, but making an enormous investment in his intellectual capital. Is that irrational? Is he hurting the economy? A senior citizen is also dissaving, spending more than they earn. Is that illogical? This logic is twisted, as you can't say for certain what an optimal savings rate is for any individual, let alone across the entire economy.
Aggregate demand drives nothing. It's the supply-side of the economy that matters. Africa has the same demand as the USA, but they have a supply problem. Your demand power is no greater than your supply power. That's why incentives to produce matter--lower marginal tax rates, less regulations, etc.
I reject most of Scott's analysis, except his analysis that higher government spending will lower the growth rate of the economy in the long run (like Europe). To blame the current crisis on financial innovation is way too simplistic. Why didn't he mention the incentives and moral hazards created by government entities, regulation and legislative actions? Read Thomas Sowell's new book "The Housing Boom and Bust" for a far better analysis of why and how we got here.
If you want the alternative to Keynes, see our Second Life presentation for the Maryland association. But more importantly read the books we suggest at the end. I would start with Mark Skousen's "The Big Three." I know you'd enjoy it.
http://www.verasage.com/index.php/community/comments/supply_side_economics_in_second_life/
Posted by: Ron Baker | June 10, 2009 at 11:22 AM
Scott,
I hate to say it but Ron above is right. However, knowing you as I do, I believe your intent is to address the subject by applying current economic majority in this country (regardless of whether or not some of us find this position to be destructive to long-term economic growth and prosperity as it defies the natural laws of economics) - what sort of economic policy should we expect in a country that is led by a group of vulgar Keynesians? This is just how it is.
I will have to listen to the podcast before I get into any more (congrats on the new blog, btw, that's going to be pretty awesome!) but Ron is also right in pointing out that the "Paradox of Thrift" has been debunked by alternate schools of economic thought. Though we're overrun with Keynesians, I personally believe that now is the time to embrace alternate economic "realities." Sadly, it might be too easy to blame the continued decay of the economy on factors other than reckless money creation and antiquated, incorrect thinking when it comes to the push and pull of the economy so the Keynesians may just get away with this little stunt.
Anyway. +1 on the Sowell recommendation (he's a good read no matter which title you choose - Economic Facts & Fallacies is my favorite Sowell title, another mythbuster) and congrats on the new blog, I'm sure it will be exciting and fun to keep an eye on (I expect no less from you, of course).
And if you need to borrow a Fedwatcher's economic expertise going forward, you know where to find her... :)
Posted by: Adrienne | June 10, 2009 at 06:06 PM