Shocking! NIRP causes savings not spending

The whole point of negative interest rates (NIRP) in Europe and Japan was to force people to spend by punishing them for clutching their cash. The rationale goes deep into the middle ages before modern economics: the economy is sluggish because people are saving too much instead of spending. Good economists thought they had buried that monster by the 1930’s, but Lord Keynes resurrected it and gave it a title of nobility. That’s how medieval economics came to dominate mainstream academics and central banks for 90 years. If you don’t believe in zombies, you haven’t followed mainstream economics for long.

Financial Education Fails

 Many people share a strong pessimism about the future of Social Security while secure pensions from a lifetime of working for the same company have followed the path of buggy whips. So in spite of decades in which the nanny state tried to protect people from life, people feel  less secure than ever. 

As usual and when all else fails, the experts turned to education. Teaching people about the miracle of compound interest and providing GPS guides to navigate the forest of investment alternatives and complex securities would empower consumers to make wise investment decisions. But as usual it failed according to a paper by three academics who analyzed 168 papers covering 201 prior studies. The paper, “Financial Literacy, Financial Educationand Downstream Financial Behaviors” was made available online in January and will appear in a forthcoming journal, Management Science. The authors concluded that

These interventions cost billions of dollars in real spending and larger opportunity costs when these interventions supplant other valuable activities. Our meta-analysis revealed that financial education interventions studied explained only about 0.1% of the variance in the financial behaviors studied, with even weaker average effects of interventions directed at low-income rather than general population samples.