I just got back from the International Academy of Business and Public Administration Disciplines (IABPAD) conference in Hawaii. All the economists there were aghast at what Congress is doing to the US economy. These are people who teach at business colleges and are presumably pro-business. Indeed, many of them came from the business world before taking up teaching. One paper, done well before this insanity started, looked at what influences the rate of consumer savings in the US. This is important because we are a consumer-based economy. While a certain amount of saving is a good thing, if it gets too high, that acts as a drag on growth. They found that the two most important factors impacting the savings rate — the percentage of personal income that gets saved — were personal net worth and the general interest rate. If net worth was up, spending was up. On the other hand, if interest rates were up, spending was down.
What has this to do with today? (more…)