Reply To: The Stock Market Crash

#18563
jmherbener
Participant

It’s well known by economists that it was a deficiency of investment and not consumption that held back production during the Great Depression. Even Keynes knew this and hence, his claim that the animal spirits (over-optimism and over-pessimism) of investors (not consumers) was the root cause of the Great Depression. Moreover, the rich have higher saving rates than the middle-class and poor. Thus, if the downturn made income and more equally distributed, then consumption would be relatively larger. Finally, the bulk of income in a market economy is in the hands of the middle-class. Therefore, aggregate consumption and investment don’t change much when the rich pull back.

Take a look at Bob Murphy’s book, A Politically Incorrect Guide to the Great Depression.