Breaking news! Lower income = lower consumption

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Hold the presses! Economists make shocking discovery!

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HOLD THE PRESSES! Economists make shocking discovery!

On the Real-World Economics Review blog, Merijn Knibbe alerts us to an amazing breakthrough in economic analysis.

It’s in a paper titled “Consumption and credit constraints during financial crises,” published this week in Vox, a web journal that claims to provide “research-based policy analysis and commentary from leading economists.”

The authors are economists associated with the Economic and Social Research Institute, a Dublin-based outfit that says it “contributes to understanding economic and social change in the new international context and that informs public policy making and civil society.”

After analysing per capita consumption in the current economic crisis in five European countries, the economists conclude:

“We find that consumption growth is lower during financial crises, particularly during banking crises, and that a drop in income reduces consumption in the short run.”

Apparently this is a surprise, because it contradicts mainstream economic theory.

And that says everything you need to know about mainstream economics.


More from my notebook …