Douglas Carswell's Blog

More muddled thinking from the CBI?

Britons must, according to the head of the Confederation of British Industry (CBI), save more.  "Bravo!", you say.

John Cridland wants us to "raise savings levels" in order to prevent long-term economic and fiscal failure.

But hang on a moment....  Is this the same CBI that spent years, perhaps decades, insisting that we should have low interest rates? See here or here or here.

Did it ever occur to the CBI that the low interest rates they demanded might possibly create a disincentive for savers? Do you suppose the CBI "captains of industry" ever stopped to ask if low interest rates might perhaps encourage excessive debt and over consumption?

The CBI, of course, largely got its way. We have had years of low interest rates as they demanded.

The trouble is that with the price of credit so low, and so few savers thereby putting money aside, there was very little real credit in the system. So the banks instead lent out lots of candy floss credit – IOUs piled upon IOUS. The miracle of modern banking produced faux credit but real debt.

Eventually when the mountain of ponzi credit unravelled, it nearly brought down the banks. 

In any market, if you artificially lower the price of something, you diminish the incentive for suppliers to supply it. So to with credit and savings.  If Mr Cridland is serious when he says we should save more, he should have the courage to come out and question the easy money consensus that landed us in this mess.

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