January 14, 2018

WHY WE ARE ALL NEOCONOMIST NOW:

In Which World Would You Rather Live? (DON BOUDREAUX, JANUARY 14, 2018, Cafe Hayek)

 While saving and investment are not sufficient for economic growth and mass flourishing - market-tested innovation is indispensable, as is security of property rights - saving and investment are among the many necessary conditions.  And I believe that, among all of the many necessary conditions, savings and investment are especially important to emphasize given the man-in-the-street's naive, Keynesian conviction that the great driver of economic prosperity is consumer spending.

For non-rich people it's a blessing, not a curse, that rich people save.  Saving (rather than consuming) releases resources to be used, among other ways, to produce capital goods, to refurbish factories and stores, and - importantly - to fund and sustain research and development and other innovative institutions and efforts.  It is simply untrue that the economy "slows" or otherwise suffers insofar as money is not spent buying consumption goods and services.

So here's a mental experiment, one that probes cases that, while admittedly extreme, are instructive.  Ask yourself in which world would you prefer to live: Smithworld or Keynesworld?

These two worlds are remarkably like each other except for one feature.  In Smithworld, many people save, while in Keynesworld no one saves. 

This is why we will eventually tax only consumption and will fund universal HSA/SS/O'Neill accounts.

Posted by at January 14, 2018 4:06 PM

  

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