Gerald P. O’Driscoll Jr: Hayekian Asset Boom and Bust, Not Keynesian Failure of Demand

The debate of what is actually the primary economic problem continues. This op-ed focuses on fiscal and monetary policy, not other economic activities such as trade.

First, our lingering crisis and economic weakness was brought on not by a Keynesian failure of effective demand, but by a Hayekian asset boom and bust. Second, the textbook case for low interest rates treats the policy as one of benefits without costs. No such policy exists.
. . .
The solution lies in restoring balance sheets. For financial firms, that means raising capital. For consumers and businesses alike, that means saving more of their reduced incomes.


What does that mean in practical terms? What should businesses and consumers do with their increased savings? It has to be put somewhere such as checking accounts or savings accounts, money market accounts, buying bonds or stocks, paying down debt.


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