And the savings rates from 1929-1939?

What was the median income by year from 1929-1949?

You are lying with statistics.

Ellen,

I grew up during the Depression, went into the Army Jan 7, 1943, got home Dec 7, 1946. Now, due to age, my memory isn't what it used to be, but these statistics you're reading are nothing like I remember those times.

Working conditions prior to and during the depression for those that had jobs were horrid; crappy wages, no benefits, terrible working conditions, no overtime pay. etc. All that changed by 1949. To say the standard of living was the same in 1949 as it was in 1929 is just silly.

One example; After school during the 30s my job was to walk the local railroad tracks and try to find "dropoffs", pieces of coal that fell off the coal cars taking product to the Port Richmond piers in Philly. By 1949 we had coal being delivered by the half or full ton to the house.

One other example I just rmembered; during the 30s we ate "slop cakes", simply flour and water, mixed and fried in old grease we used from the bones we were able to lift off the rendering trucks. In 1949 we mixed flour, milk, eggs, salt and maybe sugar. The slop cakes of the 30s became the pan cakes circa 1949.

And, I think much of the hard times during the war were due to rationing, at least thats what my mother used to write about.

intellectual rigor

If there were an expression: "Wow, that chick is packin' mad rigor!", we might perhaps be forgiven for applying it to Ellen.

Hmm.

Well, what I'd say to a conservative at a party is that recessions occur when there is a relatively large shortfall of production relative to capacity because production has decreased. And that this can occur for many reasons; that for the purposes of correcting this it doesn't really matter why this occured; and that whatever it takes to cause production to rise upward is how you cure a recession.

For everyone, conservatives and liberals alike, who don't understand how savings and spending fit into this, I'd make the essential point that there's a big difference between saving on a personal basis and on a national basis—indeed, that this is generally true of economic activity is the key point in understanding macroeconomics. It is a fundamental error to generalize macroecnomically on the basis of household economics.

If an increase in household savings translated directly into investment, then an increase in household savings during a recession wouldn't be counter-productive and would be, in fact, productive. The reason this isn't the case now, and often in recessions, is because the same forces that are causing consumers to be cautious are also causing both businesses and lenders to be cautious. It's almost always the case that businesses will be less likely to borrow and invest during a recession because they will be seeing lower revenue, even losses, because consumers are saving instead of spending. But the current situation is even worse because the lenders right now also have a very strong disincentive to lend—they don't even know if they're insolvent and they are certain that they don't have enough cash reserves. Not to mention that defaults are increasing.

These things combined mean that an increase right now in household savings will do absolutely nothing to alleviate the recession. This is what happened in Japan—the Japanese are culturally very fiscally conservative and individuals and businesses alike are generally inclined to save rather than spend, and doubly so during uncertain economic conditions. And so they had a strongly reinforcing cycle.

What should individual households do right now? Well, obviously, borrowing and spending extravagantly, as we've been doing, is foolish. It's not generally possible anymore, anyway.

It's a bit of a "tragedy of the commons" situation, here. It's in our collective interest that Americans spend. But it's in our individual interest to be extremely conservative and save to insulate ourselves as much as possible from these hard economic times. The only advice I can give here is to try to find a balance between the two. Don't spend foolishly, but do continue to spend; don't save excessively, but do save to protect yourself moderately.

The most important thing individuals can do is to support the only good solution to ending the recession as effectively and quickly as possible—massive government spending. Government can spend when households cannot, thus making up for the gap between capacity and production. Furthermore, as argued elsewhere in this thread, we should individually be supporting the right kind of stimulus spending—the most effective short-term, recession-fighting forms of spending; and the most effective long-term, productivity and capacity increasing forms of spending (particularly, infrastructure and education).

Finally, we should also support policies that, once out of the recession, increase our national savings rate and decrease national budget deficts and especially overall debt. It's important to understand that people tend to overreact about national debt. The late 90s showed us that a booming economy with even moderately more prudent budgeting can erase a huge national debt in only a few years. We shouldn't count on this; but the right sort of recession fighting stimulus can set the stage for a strong longer-term economy, which can, in turn, self-correct the debt that was incurred during the recession.

In any case, as much as concerns about massive, long-term governmental debt are valid—and they are—I think it's a mistake to under-estimate the misery that severe recessions create. When we worry about the world we are creating for our children, we should also consider the world we are forcing our children to grow up within as, for example, they suffer through a home life with unemployed parents who constantly fight and everything else associated with the misery of very bad economic times. A recession is an acute condition that must be given priority over long-term considerations.

If you were truly able to debunk Keynes and Krugman, you'd have a Nobel prize. Your heroes, Hayek and Friendman, both received their prizes for work which did not contradict Keynes's General Theorem.

The Austrian school is exactly equivalent to geocentricism and creationism. All three represent the dominant view prior to paradigm-shifting advances in their respective sciences; all three represent viewpoints which validate commonsense and protect vested interests; all three are extremely marginalized or absolutely denied by the consensus in their respective sciences; and all three had or have fervent believers who assert conspiracies against them. And all three, in their post-paradigm-shifted forms, are practiced almost wholly outside of their respective sciences and are therefore properly understood as crankery.

Finally, two of the three are vocally and widely represented on the Internet.

You and people like you contribute to popular confusion about important matters. You're under-educated and ideologically motivated and spread a large amount of disinformation which greatly distorts public policy. You are exactly the equivalent of a creationist who confidently asserts that his arguments have soundly refuted evolution. Your arguments are predictable, have been debunked many times over, and are grossly under-informed. And, like a creationist, you will not be the least persuaded by any contrary view you encounter, including this one.

Those savings can be created in many ways: lowering interest rates which increase/decrease the discounted price of assets/debts; government deficit spending which transfers the income of future wage earners to current wage earners, the passage of time itself, etc.

I would argue that you cannot, absent time travel, transfer future income to current wage earners. You can only borrow from what has already been saved in the past. You can put future wage earners into debt to current savers in order to transfer money from current savers to current wage earners, but you cannot actually borrow anything unless someone has saved.

You know, this "something for nothing" idea is what bothered me about stimulus spending for the longest time. It seemed impossible on its face. Over time and a lot of reading, though, I do believe it makes sense.

The key to this problem is that a _nation's_ (not an individual's) economic growth is based on feedback loops. There are two relevant feedback loops in this case. One, the positive feedback loop that everyone's familiar with:

Investment --> jobs --> demand --> investment

Note how, if you look at this cycle, it keeps going up, but... where's the sacrifice?!? Nowhere. It is, essentially, something for nothing. The problem is when we get into feedback loop two: the negative feedback loop.

Less spending --> less investment --> fewer jobs --> less spending.

In this cycle, it feels like we are getting ripped off for seemingly no reason whatsoever. Instead of something for nothing, it is losing for no reason. And this is where Keynes had his insight.

Normally, we have a positive feedback loop. But, when consumer spending goes away, and the economy looks like it will go into the negative feedback loop, the government can step in and prevent the economy from tanking. In doing so, it _looks_ like something for nothing (free economic growth based on borrowing, woo!), but in reality, the government is acting as an economic cop preventing the economy from jumping off a bridge.

And to do this, the cop needs a weapon, and that weapon is deficit spending--borrowing money from the future to prevent a suicide attempt today. When the economy steps off that bridge and starts making money, the cop can tax the economy for services rendered, and pay off that debt.

"Essentially, kmellis is implying (perhaps unintentionally) that if we just refused to accept that the credit derivatives and such were overvalued that we could avoid the recession and live as if the overvaluations represented real wealth."

We'd know deep down, which would screw up our attempts to pretend we didn't know. Believe me on this--I've driven the van of self-delusion farther than most, and it always runs out of gas eventually.

"'Savings' does not mean taking your resources and hiding them under your mattress."

You write this and then you act as if someone paid to dig a hole and fill it will then take their paycheck, cash it, and hide the cash in their mattress. You're being blatantly inconsistent.

The broken-window fallacy doesn't apply to macroeconomics.

And your assertion that consumer savings necessarily equals capital investment is false. It's false at present for the specific reasons I've already given (banks right now are, and will, increase their cash reserves instead of loaning it); and also because you don't understand that the velocity of money is not a fixed quantity.