Our grandparents understood that saving was the road to financial success, not spending and indebtedness. Households are now starting to remember this truth and are saving after years of borrowing and spending. This is the rational thing to do. Not only are they solving their own financial problems, it is also the road to economic recovery.

Every state intervention into the market nexus — every tax, regulation, redistribution, or expansion of bureaucracy — only slackens the ties linking contribution and income, thereby hampering the instrumentality of the market by making producers less responsive to consumers, and thus leading to reduced consumer satisfaction. And because, with regard to economic provision, we are all consumers first and foremost and producers only subordinately, reduced consumer satisfaction means reduced public welfare.

Making stuff the cheapest way is the road to prosperity. Trying to find expensive ways to make stuff (because it once was a good idea but no longer is) is the road to poverty.

While the balance sheets of government and financial institutions are damaged, the corporate sector is in excellent shape. Corporations have used the crisis to cut costs, especially labor costs. They’re highly profitable and productive: earnings are going to be surprising. They are sitting on $2 trillion in cash in the U.S. alone. But they are not spending it. And even if they start to spend, it’s not clear why they’d choose to invest in slow-growing advanced economies rather than fast-growing emerging markets. One reason they’re not spending more is excess capacity: roughly a quarter of industrial
capacity is currently not used. Why would you want to do a lot of investment where there is excess capacity?

The Administration appears to be gearing up to try to Do Something on the housing and general economy front. Readers have no doubt wised up to the fact that Doing Something, Obama Administration version, generally consists (at best) of largely cosmetic measures accompanied by lots of handwaving.

Delaying a financial reckoning is rarely the best approach.

I am amused by those who think a US recession will come within a year. Even more amusing are those who think a recession will not come at all. The US is in a recession now.