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AP discovers policy uncertainty... sort of

10/7/2013

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Quite an interesting "human interest" piece today that the AP has put out, looking at what sounds like a "paradox of thrift" moment, but from the point of view of individuals. Basically, the article, entitled "Families Hoard Cash 5 yrs After Crisis," shows how  specific individuals across the world are holding onto their money and avoiding debt and consumption. It does indeed take a quasi-Keynesian look at the problems that come about when all these thrifty people start not spending their money:

The implications are huge: Shunning debt and spending less can be good for one family's finances. When hundreds of millions do it together, it can starve the global economy.


The whole article may have misguided analysis, but it's a good read. Indeed, it's a fascinating look at the effects of policy uncertainty (an issue that I have written about before), but without ever calling it by its name. While the authors try to pin everything down to Lehman Brothers (hey, isn't there an anniversary of sorts about that coming up?) and the epoch-changing event it heralded, it would be better if they examined what has happened since then: gigantic fiscal stimulus plans, loose monetary policy, aggressive interventions by central banks, attempted increased taxation in all walks of life, and crackdowns on any sort of entrepreneurship. This policy uncertainty has made people less sanguine about any form of investment (because of increase volatility), it's reinflated the stock market bubble (which people are understandably wary of jumping back into), and it has kept unemployment at high levels. 


This is less a misguided analysis of "damn those hoarders" than it is concrete evidence at the individual level of how policy uncertainty filters through the economy.
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    Dr. Christopher Hartwell is an institutional economist and President of CASE Warsaw. All commentary on this page is exclusively his own and in no way represents the views of CASE, his wife, his dog, or anyone else. Especially not his wife or his dog.

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