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| Rick Kelo |
No economist garnered more fame in the 20th Century than John Maynard Keynes, the father of government stimulus spending, bail-outs, and a whole school of thought known as Keynesian Economics. However, says Rick Kelo, the core thesis of Keynes' position is simple nonsense if examined.
"Keynes was avidly against saving & in favor of rabid consumption. So if we consider people saving instead of spending, which Keynes called hoarding, this point is an incredibly central to his policy recommendations. In 'General Theory' Keynes makes the case that in a recession we have this depressed interest rate, increased money supply, and therefore the incentive exists to increase cash positions or 'hoard,'" Rick Kelo continues, "Because the citizenry have this propensity to hoard, then Keynes claims government must overcome this "recessionary gap" through stimulus spending of its own to make up for the lack of consumption due to recessionary conditions making an incentive to increase cash balances."
What is really going on when interest rates are low? This question still puzzles most economists but Rick Kelo gives us a straight-forward look in plain English:
When the Central Bank sets interest rates artificially low it makes it cheaper to borrow since loans and credit cards now have lower interest rates. It also makes the alternative, saving, less attractive because savings accounts now pay less interest.Richard Kelo notes. The actual economic incentive of a low interest rate creates the precise opposite effect Keynes claimed.
