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Mr Bean says that the way for us to solve our problems is for us to do more shopping Indeed:
Mr Bean said that encouraging Britons to spend was one reason why the Bank had cut interest rates.
The Cobden Centre’s James Tyler is not impressed, that being where I found out about this latest piece of Keynesian crassness.
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Mr Bean – I know it seems a cheap shot but what an apt surname for such a buffoon.
These Keynesians really manage to get their economic wagons in front of the horse, don’t they? They like to spout that Say’s Law (Link)(production creates its own demand), has been refuted. But it wasn’t.
When I read the article describing this in the Telegraph I was momentarily so incadescently angry that I said several naughty words. But then I found considerable comfort in the appearance of this astonishing article in the same newspaper. When major journalists can have a Damascene conversion like this, even if he has not yet come all the way over to “our side”, there may be hope after all.
Good stuff, Mr. Tyler. 🙂
“It may make sense for them to eat into their capital a bit.”
How about the taxpayers eating into Mr. Bean’s capital? That sounds like a much better idea.
And once your savings are all gone, if you could see your way clear to doing the decent thing, after all, you don’t want to be burden, old chap, do you?
I’m confused, is this caring conservatism or cradle to grave socialism?
I for one am eager to get on with it immediately, but I seem to find myself somewhat short on savings recently. Perhaps Mr Bean would deign to distribute his own savings and shares amongst us – after all, it’s in a good cause, right? But how foolish I am! I’m sure that Comrade Bean has already given his all, and wrote his latest pronouncement in his the light of a flickering candle in his tiny one-room apartment.
Good link, IanB. Maybe there’s hope yet (although I’m not holding my breath).
The fact that an imbecile like Charles Bean can become a Deputy Director of a major central bank is all the argument one needs against the creation of central banks.
And anyone who thinks that Say’s Law has been “refuted” doesn’t understand Say’s Law (or, for that matter, fundamental economics).
Many people are saving hundreds of pounds a month through low interest rates on mortgages and town centres are full of closed-down shops. All Bean is doing is stating the bleedin obvious; it is almost a “”we have nothing to fear except fear itself” situation. Sorry to spoil the know-all consensus.
@DBC Reed.
I would consider that spending one’s wealth on goods & services that are perceived to be unnecessary & undesirable in the current economic climate, would increase anxiety rather than reduce it.
You mistakenly characterize the situation as irrational, when it is in fact a totally rational response.
Spending for its own sake, merely transferring wealth from one place to another, without creating additional value in the system, is a zero-sum game; it is almost a “rearranging the deckchairs on the Titanic” situation.
…so people who were not previously spending money in those shops (since they did not have the money, as they were not at the time saving it due to low interest rates) must now rush out and spend money they did not spend before on products they did not purchase before.
That would seem to pretty much perfectly illustrate the fundamental error of seeing the world through the filter of aggregated statistics.
I’m confused. Interest rates are about borrowing money.
Surely the central bank is not encouraging people to spend borrowed money?
And isn’t it a duplication of effort for savers to eat into their capital?
Since his bank’s inflationary policies are doing that like a cloud of locusts which have been genetically spliced with pirahnas, termites, and hyaenas?
& dn & ib
I am not sure I said the situation where people with monthly savings on mortgage repayments do not spend them is “irrational”; that is certainly one inference I suppose.
It does make you think about Say’s Law though: people are supplied with money or rather they spend less with their mortgage providers but this supply increase does not manifest itself in any demand.Presumably a Keynesian would call this “hoarding”: looks a bit that way.
Someone else who doesn’t understand Say’s Law. Try this.
Spending less on mortgage payments is not a “supply increase”. At best it could lead to a demand increase, but without a corresponding increase in aggregate supply it will simply lead to price inflation.
The point I was making was that aggregates are misleading. People have different desires for different products and trying to increase “aggregate demand” when the demand for Product A has gone by telling them to buy Product B makes no sense, which is why “stimulus” doesn’t work. I say again; the people with the mortgage savings didn’t buy those products before. Why on earth would they go out and buy them now? You just can’t analyse such questions with aggregates, and trying to do so leads to error of Keynesian proportions.
IanB, I was actually replying to DBC Reed, not you. However, that doesn’t make your statement correct (or at least not completely so). Aggregates do matter. If there is reduced demand for Product A (assuming the supply remains constant) there will be a corresponding increase in demand for everything which is not Product A. Not necessarily for Product B (or only for Product B), but for the total universe of available “Not-A” products. But I agree with you that demand-side stimulus doesn’t work; it just leads to price increases. Only supply-side growth improves the overall economy.
Laird, I was actually replying to DBC Reed, not you. However, that doesn’t make your statement correct (or at least not completely so). Aggregates don’t matter. If there is a reduced demand for Product A (we cannot assume that supply remains constant) there will not necessarily be a corresponding increase in demand for everything which is not product A.
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You cannot aggregate supply and demand. They are not fungible. In a crash, an irreversible change of product desires has occurred, and nothing will restore them, because those participants in the market who formerly purchased them have realised that Product A was actually useless to them (houses, railroads, tulip bulbs). This can be measured as a drop in “aggregate demand”, but this variable is not manipulable. The people no longer desire tulips bulbs because they had an erroneous belief that tulip bulbs had a very high future value; shown to be false, not amount of money pushed into the economy will stimulate demand for useless tulip bulbs, nor for daffodil bulbs nor edam cheese.
Products are not fungible, and neither are demand or supply, whose utility is only in telling you that something interesting has happened in the economy after it has happened; much as the measure of aggregate population might be a useful indicator that something is awry if it falls suddenly (e.g. an epidemic of disease) but boosting aggregate population (e.g. by importing many new persons) will not solve the disease problem.
Hardly very comfortable in nomansland with Ian B and Laird firing over you.
To get back to the starting point: Bean of the Bank is clearly irritated that their action on interest rates has not led to a demand increase such that the shops re-open. Say’s “Law” (he did not go round laying down economic laws as such) has been called up to explain the lack of effective demand.In view of the fact that many people with mortgages are hundreds of pounds a month better off and evidently not spending it in the shops ,I am merely suggesting that Keynesian hoarding theories might pragmatically offer a better explanation.
The only argument put up to oppose this suggestion is that people were n’t spending the money in the shops before (they were sending it off to their banks and building societies)so what could they possibly want to buy now they’ve got it?This alleged argument would suggest that people would not work (or speculate) for more money because they could n’t think what to spend it on ,having been inured to relative scarcity.
This theoretical speculation above does not address the simple practical problem: a lot of people have got a lot more spending power and are not using it.What would opponents of the hoarding thesis proffer as a practicable solution?
Ian B. – there are still errors in Mr Prichard’s article, but he has certainly come a long way (and it takes a big man to say “I was wrong” and mean it).
Staghounds – yes that is exactly what the Bank of England and the rest of the academic, political and media establishment are saying.
Savings should be reduced and borrowing increased – they see no contradiction there.
And an economy is based on consumption – not upon production (J.B. Say was “refuted by Keynes” – even though Keynes did not even quote Say’s Law correctly, let alone “refute” it).
Broadly speaking the establishment are a mixture of fools and knaves – and a some of them are both.