I found a must-read article on the subject of my previous post. Although I think the article at the link just below is mostly correct, it misses a key point that can be a traumatic show-stopper. First read the article; then come back and read my assessment below.
The article: Consumers Don't Cause Recessions
(Don't miss the metaphor-of-the-month, about politicians who think it's their duty to do a "Control-Alt-Delete" on the economy.)
As I said, the article is mostly correct. But even though increased saving (decreased consumption) by consumers might be neutralized by decreases saving by the businesses they patronized (the "paradox of thrift"), it is incorrect to assume that all saving is automatically invested in future production. That's the flaw I spotted.
A more-complete title would have been this one: "Consumers don't cause recessions -- but they hate high unemployment, and they vote in droves." If nobody wants to invest in the future, prolonged high unemployment is all we can expect; in turn, voters who dislike high unemployment can be expected to vote in governments that will "do something" about it -- even though government is the biggest, most sluggish monopoly of all.
The situation we have today is not just a sudden shift by consumers toward saving and away from consuming, but a sudden lack of ability or desire by banks and entrepreneurs to lend, borrow, and invest. The offsetting shift in the saving mix (from business saving to personal saving) isn't the main point; the curtailment of investing is the point. (See Jerry's comment under the previous article.)
We need to jump-start investment activity; unfortunately, the drop in consumption ("demand") is getting all the press. With the fall-off in investment, financial intermediaries (banks) aren't intermediating anything, they're just playing the role of glorified mattresses. We need such things as cuts in corporate tax rates, which are a key ingredient in growth and prosperity for any country, as this article notes.
Restoration of the investing component of total spending is key. If it doesn't happen, we're in for a long spell of global cooling.