There is only one manner in which this editorial by The Observer could be correct – that the recession is over and the Good Times are back. Since this isn’t what the Observer believes we must therefore assume that the people who wrote it haven’t a clue what they’re talking about:
A decade after the crash, we still borrow too much and invest too little
Start with basic Keynes. There’s something called the paradox of thrift. It’s entirely rational for people to save more in the bad times. Risk has, after all, just increased. But for the economy as a whole this is a bad idea as it reduces demand. That makes the economy smaller than it would be without that extra saving. The answer to this is to make saving less attractive and spending more. That is, we deliberately set out to reduce the national savings rate.
The most obvious manner is by reducing interest rates. When we run out of that we can – and do – use other means. OK, but note what we’re trying to do, reduce that savings rate. We’ll make up for it when the economy’s back on track.
But it has all been empty rhetoric. Households are spending more than they are earning for the first time in 30 years.
That’s what we’re trying to achieve, fools. The only reason we might not want this to be happening is because the economy has recovered and we’re back in the Good Times. Is this so? Not according to The Observer, no. So why in hell don’t the understand the most basic economics as they pontificate upon economics?