Thrifty families accused of prolonging the recession – Times Online

Via Thrifty families accused of prolonging the recession – Times Online, yet more crass Keynesianism:

Anxious families are repaying debts instead of spending in the shops, amid concern over the uncertain economic outlook. The share of income saved in banks and building societies has risen to its highest level in more than a decade, heightening fears that faltering consumer demand could prolong the recession.

But see also Correction, Mr. Bernanke:

It is real savings that fund economic activity. The increase in the pool of real savings is the key behind sustained real economic growth.

These two authors make fundamentally different diagnoses and policy prescriptions because economics is not a positive applied science comparable to, say, physics. There are at least four schools of economic thinking, as Jeffey Tucker explains, but only one school predicted the bust.

This conflict over whether saving promotes recovery really matters: if the wrong side win and policy makers take heed, the recession will be deeper and longer than necessary.

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