"States are also readying for bad times by squirreling away more cash in reserves."
Now both huge companies and local governments are hoarding cash. Which is problematic for the economy as a whole.
Now both huge companies and local governments are hoarding cash. Which is problematic for the economy as a whole.
Only if you insist on maintaining aggregate demand.
Which we all probably do - certainly I do.
But it bothers me that people trot out the "accounting identity" that public and private sector output cannot simultaneously fall - typically in a very condescending, mansplaining fashion - without acknowledging that they can absolutely be disconnected, provided you're willing to accept a drop in aggregate demand (and, presumably, deflation, hurt feelings, etc.)
Greece, Spain and Portugal haven't shown us that austerity damaged the economy. _Their economies were already bleeding_ but they were throwing enough money & debt at the problem to cover it up. Austerity is the fix that they needed to do eventually, and it's better that they did it now rather than later.
Saving for a rainy day is prudent fiscal policy.
Yes, in your textbook it is. In reality, in 2016, banks are hoarding that cash outright, or "lending" it to other banks, etc., for near-zero returns.