Friday, July 02, 2010

The Visible Hand # 3

I've been under the weather the past week, very discouraged by the behavior of Congress and then slightly ill. So I have been entertaining myself with the visible hand, rather than doing the things I normally do, such as exercise and write science fiction.

Another examples of how acting in one's own best interest does not benefit the economy...

It's a good idea for individuals to build up a savings account, or so we are told, and it sounds right to me. And it makes good sense for individuals to reduce their household debt. However, the American and world economies depend on consumer spending. If large numbers of people save, spending on consumer goods goes down, and the result can be a recession. The prudent behavior of individuals, acting in their own best interest, can lead to layoffs and hard times.

This is happening right now.

One could, of course, think about creating an economy where this problem does not occur. Right now, the government could invest in education, infrastructure repair, the environment, energy... This would create jobs. Individuals would have money, which they could use to pay down debts and save, maybe by buying government bonds, which would help fund the government.


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