You want proof that Keynesian economics is insane. Well, here it is. From The Telegraph in London:
Savers should stop complaining about poor returns and start spending to help the economy, a senior Bank of England official warned today. . . .
Older households could afford to suffer because they had benefited from previous property price rises, Charles Bean, the deputy governor, suggested.
They should ‘not expect’ to live off interest, he added, admitting that low returns were part of a strategy.
It’s the strategy to discourage saving! What complete fools.
If there is any “strategy” more calculated to make economic conditions worse than they already are, a campaign to reduce private savings would be hard to beat. If you think like a Keynesian that an economy is driven by aggregate demand, then you must think that saving is in and of itself a problem when the economy is in recession. And this is not just some poor sod academic jerk somewhere off in Hayseed-on-Thames Polytechnic but a Deputy Governor of the Bank of England with the full support of the Governor, Mervyn King, himself!
Stupid beyond idiocy. Criminally negligent. Infuriating.
Want to know just how insane this is and also what to do instead? First read the article and then read Chapters 16 and 17 of my Free Market Economics which so far as I know may be the only introductory level text anywhere that will explain to you what you need to know.
And now from another BoE D-G: These people really are nuts. It’s their economic models, of course, but how can we protect ourselves against such views.
Negative interest rates could become a reality in an ‘extraordinary’ move by the Bank of England to kick-start the economy, one of its senior officials revealed yesterday.
Deputy governor Paul Tucker said a reduction of the base rate to below zero should be considered four years after it was cut to a record low of 0.5 per cent. . . .
If the base rate did become negative, it would mean major banks would have to pay the Bank of England to hold their money. The idea is that this would encourage them to lend more to stimulate both business and house buying.
I start with the assumption that this is so obviously wrong that merely putting it up on the page is enough. Everyone can immediately see why lowering interest rates to inhibit saving – going so far as to introduce negative interest rates – cannot be anything other than bad news. But after three-quarters of a century of Y=C+I+G we may well have reached the stage where virtualy no one with a degree in mainstream economic theory understands how an economy works. Really, how are we going to get out of the mess we are in if these are the best ideas those managing our economies have to offer.