It's kind of scary to realize that a man was able to present such great insight to the workings of our economy 70 plus years ago and yet we have not been able to forestall our modern economic woes.
As the article so neatly summed it up:
If individuals and businesses try to save more, they will cut the incomes of other individuals and businesses, which will in turn cut their spending. The result can be a downward spiral that will not turn up again without outside intervention.
That is where government comes in: to pump money back into the economy by some means, such as spending on public works, to persuade individuals and businesses to save less and spend more themselves.
This is precisely the behavior we are seeing today; consumers hear about the boogey man on the evening news and pretty soon they're stuffing wads of cash in their mattresses and tightening their belts. And soon the "impending crisis" that they keep hearing about becomes a self fulfilling prophecy. A key economic assumption in many models is that the consumer is rational; well with all of the hype it doesn't seem like we can expect to see a rational consumer anytime soon.
Don't get the Hobo wrong here; there are many many variables at play, but consumer confidence IS a leading indicator of the economy overall...that's what John McCain meant when he said that a large part of the problem is psychological.
