Economics is often referred to as the dismal science because the predictions by economists are often … well, dismal. The failure of economists to spot the incredible credit bubble developing and to take action against it is one of the latest in a long line of failures for economists. The inability of economics as a profession to accurately predict the current situation and to increase standards of living of people through an efficient allocation of the means of production has been going on for decades. At times like these, defunct notions of Keynesianism are brought out like White knights. It is ridiculous to think that the economy can be turned around by paying hundreds of thousands of people to dig holes and then paying hundreds of thousands of people to fill the holes in again. What the economy needs is a fundamental restructuring. The British economy has been built on debt and consumption for far too long. What is really needed today is savings and production. Unfortunately, the production needed requires wages to equalise with the Asia and the savings needed requires that interest rates will rise dramatically.
In a nation which is in love with property ownership and speculation, this will be a painful blow. However, in the interest rate debate there is often a forgotten element of society which depends on interest rates to generate income from cash deposits. The baby boomers who have recently retired have seen the value of their incomes plummet as the interest they get on their deposits has fallen to record lows.
Not only will a drastic increase in interest rates replenish the nation’s savings base, it will allow more money to flow into the economy as investment. It would replenish the productive capacity of the economy and create real jobs, not jobs based on debt and consumption. Many modern economists believe that savings are actually harmful to an economy. The day is surely fast approaching when this notion will be overturned for ever.
However, if the economic professors have their way, they will continue to preach the evils of a sound monetary policy and a high savings rate. Savings are required for productive capacity which is required to earn our way in the world. Without a sound savings base, we can have neither. One of two things is certain over the next few years. Either we will have low interest rates and hyperinflation, or we will have very high interest rates and a deepening crash in the property market. The only long-term solution and the only way to generate true wealth of the economy is through production. We will have to do it sooner or later. We may as well bite the bullet now.
