Young People Saving Money - What a Disaster!

The madness behind Keynesianism can be found in an article today in the Times ("As New Graduates Return to Nest, Economy Also Feels the Pain") featuring uber-Keynesian Mark Zandi of Moody's. Saving money is bad, you see - and squandering it on useless frills is what the economy needs. What Zandi wants young people to do when they get their first job is to get their own place and start spending that money.

Every year, young adults leave the nest, couples divorce, foreigners immigrate and roommates separate, all helping drive economic growth when they furnish and refurbish their new homes. Under normal circumstances, each time a household is formed it adds about $145,000 to output that year as the spending ripples through the economy, estimates Mark Zandi, chief economist at Moody’s Analytics.

Clearly Zandi has learned nothing. That he didn't foresee what was coming is rather unfortunate, given that he's chief economist of a corporation charged with rating risk. But not to have learned from what happened is unforgivable. Zandi, Krugman and their ilk seem to believe that some weird event happened in the heavens - like a supernova that lights up the night sky - that spooked people and has led them to irrationally withdraw from the economy.

 But as we all know what happened was that people learned - when the bubble burst - that debt must actually at some point be repaid and can't be perpetually rolled over, that future high incomes are not guaranteed, that the amount of disposable income available is not infinite, and that future expenditures cannot always be paid out of current income.

 So what these young people are doing (at least according to this article's narrative) is staying a few more years with Mom and Pop to maybe save a few bucks for one of those down-payment thingies that used to be so popular back in the Middle Ages for buying houses. But apparently Zandi, on the other hand, is aghast that they're not frittering their incomes away in the expectation of landing a negative-amortization loan for a home costing twice what they can afford. Yeah, that's how a society builds wealth, Zandi - by spending.