Scholarly Beliefs and Folk Beliefs
By Arnold Kling
In my latest essay, I meditate on the topic.
Regardless of the state of scholarly belief about Keynes, folk Keynesianism is dominant. For example, most people believe that we should worry about whether “the consumer” will spend freely. Everyone fears that if consumers tighten their belts then this will “weaken” the economy. This concern with the mood of consumers is not in the original Keynes. Instead, Keynes himself focused more on business investment as a determinant of economic fluctuations.
The idea that the economy needs consumer profligacy is not nearly as entrenched among scholars as it is among journalists, politicians, and other citizens. In fact, there is a strong case to be made that we would be better off if we had less consumer spending and more saving.
I probably spoke too strongly. The “paradox of thrift” is in fact part of the original Keynes. So it is not quite fair to say that concern with consumer spending is purely an artifact of folk Keynesianism.