http://www.telegraph.co.uk/finance/c...recession.html
Who would have thought that my article last week on savings and the recession would have elicited such an onslaught of emails; more, I think, than followed any other article I have ever written.
What's more, most of them were hostile, and some of them downright rude and offensive (you know who you are!). I shall spare your blushes over the language. But the gist of the message was that I don't know what I am talking about, and that I should stop writing altogether or, as a second best, write for some other (pinko) paper where I belong!
What really touched a raw nerve, I suspect, was my assertion that some part of the discourse about these subjects comes down to points of logic. This meant anyone who opposed my conclusions thought I was suggesting their position was contradictory. Since they don't do contradictions down there in Tunbridge Wells, what I had written must have been complete tosh.
I stand by what I said, which, to summarise, was simply that to get out of recession, someone's spending on our output has to rise. There is no escape from this – as a matter of logic.
Many readers got their knickers in a twist over the role of savings. Some of them thought they had discovered a flaw in my reasoning by arguing that the act of saving itself creates extra demand. A frequent refrain was that by saving rather than spending the saver puts money into the bank or building society, which they can then on-lend, thus increasing demand in the system.
I am afraid this is also a matter of deficient logic. If instead of saving you decide to spend, some bank or building society will still have the money to on-lend, since the recipients of the money you spend will themselves have to put it somewhere, and whatever they do with it, while it is being passed around the system, it will be in some bank or other. In other words, a given amount of money can circulate around the system faster or more slowly depending on the balance of decisions between saving and spending.
This is not the same thing as saying that all saving is "bad", or that all savers should be punished. Nor is it saying that if you accept my logical structure then you have to accept my judgment on the desirability of increased government borrowing.
There are other questions which are not to do with logic, but rather with arguments on which different people can legitimately hold different opinions. It is to these that I now wish to turn.
Should we want to get out of recession? Many of my correspondents urged me to consider the opposite. Recessions clean things up and sort things out, they said. I agree. In fact, I wrote a rather provocative article on exactly these lines last year.
Yes, a little bit of recession can do you good. So too, I am told, can the occasional cold bath. But frequent and prolonged immersion in freezing water is not to be recommended. The fashionable phrase for crisis deniers is "creative destruction", the concept first pioneered by the economist Joseph Schumpeter. But this idea only gained traction from the contrast with its more frequently observed cousin, namely destructive destruction.
There is an argument that we should not want to escape from recession because before its onset there was too much greed and focus on material things anyway. We will be better off emotionally and spiritually if we accept the situation and spend more time basket-weaving and learning to play the harp – a view apparently widely held by church leaders.
Now, as it happens, I am quite in favour of basket-weaving and learning to play the harp, although I am not sure whether most of our fellow citizens would be happy to accept a lower standard of living in return for more of these activities. If you are one of those who think the recession is "a good thing", fair enough. But please do not complain in a year's time about the huge surge in unemployment and the human misery that results. And don't moan when your favourite good cause, whether it is some environmental programme, or educational spending, or third world aid, cannot go ahead for lack of money.
Supposing we want to, can we engineer an escape from recession? A large number of my correspondents think that the recession is like a fever, which must be left to run its course. This view has a long pedigree. It is what the Austrian school of economists in the 1930s argued against Keynes.
I go some of the way with this view. For instance, it would be unhelpful, I think, to try to stabilise house prices at the current, still high, level. Rather, they should be allowed to find a floor at which both lenders and borrowers can resume activity with some confidence.
Also, I acknowledge that it is possible to undertake stimulus measures that cause more harm than good.
Equally, we cannot hope, and should not aim, to go back to exactly where we were before the crisis, as an economy wholly dependent on unsustainable borrowing. Getting back to full employment and fulfilling our growth potential cannot happen without an end to global trade imbalances. And that is not going to happen any time soon.
But the notion that we should stand idly by and let things take their course I cannot accept. Recession is not like a natural disaster, such as a tsunami or an earthquake. It is thoroughly man-made. And what man has done he can undo.
It is all very well thinking that the businesses which over-extend themselves in the boom, or which rest only on bubble foundations, should go bust, but what about the thousands of perfectly sound businesses which are dragged down in the slump? And what about the millions of people, unconnected with the original excesses, who lose their jobs?
On government action to stimulate demand there is plenty of room for different opinions. I believe that there is scope for government borrowing to help, although we must have regard for both future tax rises to pay for it – which will worsen future economic performance – and the threat of default by the state. In that event, the cure would be worse than the disease.
The challenge, which I posed last week and which I repeat now, is clear: if you oppose increased government borrowing to boost demand, and you oppose attempts to stimulate consumer spending, while you see no immediate prospect of relief from companies or overseas trade, and yet you still want to moderate the recession, who do you suggest should increase their spending – the man on the moon?
Who would have thought that my article last week on savings and the recession would have elicited such an onslaught of emails; more, I think, than followed any other article I have ever written.
What's more, most of them were hostile, and some of them downright rude and offensive (you know who you are!). I shall spare your blushes over the language. But the gist of the message was that I don't know what I am talking about, and that I should stop writing altogether or, as a second best, write for some other (pinko) paper where I belong!
What really touched a raw nerve, I suspect, was my assertion that some part of the discourse about these subjects comes down to points of logic. This meant anyone who opposed my conclusions thought I was suggesting their position was contradictory. Since they don't do contradictions down there in Tunbridge Wells, what I had written must have been complete tosh.
I stand by what I said, which, to summarise, was simply that to get out of recession, someone's spending on our output has to rise. There is no escape from this – as a matter of logic.
Many readers got their knickers in a twist over the role of savings. Some of them thought they had discovered a flaw in my reasoning by arguing that the act of saving itself creates extra demand. A frequent refrain was that by saving rather than spending the saver puts money into the bank or building society, which they can then on-lend, thus increasing demand in the system.
I am afraid this is also a matter of deficient logic. If instead of saving you decide to spend, some bank or building society will still have the money to on-lend, since the recipients of the money you spend will themselves have to put it somewhere, and whatever they do with it, while it is being passed around the system, it will be in some bank or other. In other words, a given amount of money can circulate around the system faster or more slowly depending on the balance of decisions between saving and spending.
This is not the same thing as saying that all saving is "bad", or that all savers should be punished. Nor is it saying that if you accept my logical structure then you have to accept my judgment on the desirability of increased government borrowing.
There are other questions which are not to do with logic, but rather with arguments on which different people can legitimately hold different opinions. It is to these that I now wish to turn.
Should we want to get out of recession? Many of my correspondents urged me to consider the opposite. Recessions clean things up and sort things out, they said. I agree. In fact, I wrote a rather provocative article on exactly these lines last year.
Yes, a little bit of recession can do you good. So too, I am told, can the occasional cold bath. But frequent and prolonged immersion in freezing water is not to be recommended. The fashionable phrase for crisis deniers is "creative destruction", the concept first pioneered by the economist Joseph Schumpeter. But this idea only gained traction from the contrast with its more frequently observed cousin, namely destructive destruction.
There is an argument that we should not want to escape from recession because before its onset there was too much greed and focus on material things anyway. We will be better off emotionally and spiritually if we accept the situation and spend more time basket-weaving and learning to play the harp – a view apparently widely held by church leaders.
Now, as it happens, I am quite in favour of basket-weaving and learning to play the harp, although I am not sure whether most of our fellow citizens would be happy to accept a lower standard of living in return for more of these activities. If you are one of those who think the recession is "a good thing", fair enough. But please do not complain in a year's time about the huge surge in unemployment and the human misery that results. And don't moan when your favourite good cause, whether it is some environmental programme, or educational spending, or third world aid, cannot go ahead for lack of money.
Supposing we want to, can we engineer an escape from recession? A large number of my correspondents think that the recession is like a fever, which must be left to run its course. This view has a long pedigree. It is what the Austrian school of economists in the 1930s argued against Keynes.
I go some of the way with this view. For instance, it would be unhelpful, I think, to try to stabilise house prices at the current, still high, level. Rather, they should be allowed to find a floor at which both lenders and borrowers can resume activity with some confidence.
Also, I acknowledge that it is possible to undertake stimulus measures that cause more harm than good.
Equally, we cannot hope, and should not aim, to go back to exactly where we were before the crisis, as an economy wholly dependent on unsustainable borrowing. Getting back to full employment and fulfilling our growth potential cannot happen without an end to global trade imbalances. And that is not going to happen any time soon.
But the notion that we should stand idly by and let things take their course I cannot accept. Recession is not like a natural disaster, such as a tsunami or an earthquake. It is thoroughly man-made. And what man has done he can undo.
It is all very well thinking that the businesses which over-extend themselves in the boom, or which rest only on bubble foundations, should go bust, but what about the thousands of perfectly sound businesses which are dragged down in the slump? And what about the millions of people, unconnected with the original excesses, who lose their jobs?
On government action to stimulate demand there is plenty of room for different opinions. I believe that there is scope for government borrowing to help, although we must have regard for both future tax rises to pay for it – which will worsen future economic performance – and the threat of default by the state. In that event, the cure would be worse than the disease.
The challenge, which I posed last week and which I repeat now, is clear: if you oppose increased government borrowing to boost demand, and you oppose attempts to stimulate consumer spending, while you see no immediate prospect of relief from companies or overseas trade, and yet you still want to moderate the recession, who do you suggest should increase their spending – the man on the moon?
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