Home Economics Surprise! People Save In Recessions!

Surprise! People Save In Recessions!

Author

Comments

This really shouldn’t be such a surprise to The Guardian. People save in recessions – Film At 11!

British households repaid the most money borrowed on credit cards and loans in 2020 since records began almost three decades ago, as consumers cut back spending during the coronavirus pandemic.

Figures from the Bank of England show £16.6bn of net repayments on credit cards, personal loans, student borrowing and car finance last year – the most repaid since 1993 and the first annual net reduction since 2011, when the UK was still recovering from the financial crisis. Consumers had racked up £13.2bn of extra debt in 2019.

Err, yes? People save in recessions. Paying down debt is saving. This causes problems. In fact, it’s the basic insight of Keynesian responses to recessions:

The big worry was that standard Keynesian one. We have an interruption in the economy – for the logic here it doesn’t matter why – and that makes us all worried, unwilling to spend. So, the economy then spirals down into ever deeper recession and possibly depression. The bigger the shock the more likely this is to happen.

This is what Keynes called the paradox of thrift. In the bad times it’s entirely logical for each of us to save. But if we all do it that means there’s nothing happening in the economy any more. Our own fear creates the recession.

This is why we worry if the savings rate jumps, it’s the very thing that will cause a recession. Similarly, deflation creates the same problem. If everything will be cheaper tomorrow then we’ll delay purchases to gain them cheaper. This equally kills the economy as we all wait.

Debt paydowns, a rise in the savings rate:

Official figures show the UK’s households savings ratio – a snapshot of household savings as a proportion of disposable income – soared to a record high of 27% in June last year, and has remained at historically high levels since.

7 or 8% is more normal.

Shrug. Which really leaves us with just the one question. Given that this is at the core of the Keynesian economics the Guardian purports to support why the surprise here? Unless it’s just that they don;t understand that Keynesian economics they support?

SUPPORT US WITH A SUBSCRIPTION?

3 COMMENTS

Comments are closed.

expunct

in British English
expunct (ɪkˈspʌŋkt)
VERB (transitive)
1. to delete or erase; blot out; obliterate
2. to wipe out or destroy

Support Us

Recent posts

Agatha has been published.

Aunt Agatha has been published (the money came from an anonymous donor). It was £2500+ If you'd like a copy, donate £10+ and you'll get...

American Hyperconsumerism Is Killing Fewer People!

This report does not say what the Guardian headline writers think it does: Three Americans create enough carbon emissions to kill one person, study finds The...

Contracts Often Lag New Revenue Streams

I've been - vaguely and not with any great interest - anticipating a story like this: Scarlett Johansson sues Walt Disney over Marvel’s Black Widow...

Richard Murphy Rediscovers Monetarism

We have a delightful example of how Richard Murphy simply doesn't understand the basic nuts and bolts of the economics he wants to impose...

Vox Is Missing The Point About Having A Constitution

Not that we should be all that surprised by this from the progressives at Vox. No government- well, no one not controlled by...

Recent comments