Barry Ritholtz shows a graph that America's durable goods are getting old. That means that they will need to be replaced and when people start replacing durable goods, 'savings' decreases. One of the many ways that people 'save' during a recession is by putting off purchases of durable goods but eventually their goods break and they finally shell out to replace them. This is a 'natural' way for the economy to recover. But it is just like what would happen if someone went around breaking them. Moneybox:
waiting for a "natural" economic recovery rather than relying on "artificial" stimulus in the form of fiscal or monetary policy is really just a slow motion version of creating economic growth via the broken windows fallacy. If five percent of America's cars, fridges, toasters, washing machines, and blenders vanished suddenly tomorrow that would be "good for the economy" in the sense that boosting orders for consumer durable goods would lead to a higher GDP growth rate. But the purpose of having an economy is to make people better off, and you clearly don't make people better off by destroying their appliances.
By the same token, even a steep recession will generally come to an end sooner or later. Cars and trucks and buildings and appliances will get old and need to be replaced, in effect raising the "natural rate of interest" and bringing intended savings and desired investment into equilibrium. But this happens by impoverishing the country, just as much as running around smashing windows would.
No comments:
Post a Comment