My letter to the NY Times re: Keynesian macro economists are confused

Re: Saving Big on Energy Bills, People Take It to the Bank, by Nelson D. Schwartz

Dear Sirs:
Keynesian school macro economists may be scratching their heads that the spending numbers that they hold so dear are not increasing, but we Austrian school economists have a deeper understanding of the issue. First of all, it is foolish to try to psychoanalyze market participants as if they were automatons responding in predictable ways to incentives. Mr. Schwartz does recognize that viewing consumers in this way results in many diverse explanations. He hits on the better answer at the end of his article when he recognizes that increased purchasing power has helped the higher-income workers. The same can apply to those at all levels of income. But increases in purchasing power do not come from arbitrary decisions to increase wages, as Mr. Schwartz’s example of Walmart and TJX Companies suggest. Increases in purchasing power can come only from increases in worker productivity. That can come from capital investment, better management practices, and other improvements in business methods. Sound money is one key ingredient, too, perhaps the most important ingredient. Under a sound money regime, worker productivity and worker purchasing power can improve without a rise in wages, because prices will fall. And if workers save more, then all the better for our collective future, which depends upon increases in real capital accumulation from real savings and not just monetary pumping via ZIRP and QE from the Fed. Therefore, the fact that the savings rate is the highest in two years is a good sign that only confused Keynesians could rue.
Patrick Barron
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