"Here's the problem: As a matter of simple arithmetic, total spending in the economy is necessarily equal to total income (every sale is also a purchase, and vice versa). So if people decide to spend less on investment goods, doesn't that mean that they must be deciding to spend more on consumption goods—implying that an investment slump should always be accompanied by a corresponding consumption boom? And if so why should there be a rise in unemployment?"
Isn't the issue that total spending / income decreases? I.e., people are just putting money into the bank instead of external investments or consumption? And the banks themselves are just sitting on the cash?
yes, after many years of negative real savings we are now trying to make up for it with positive real savings. but because the years of negative savings eventually caused the loan bubble to pop now banks are doing the same thing, saving cash instead of investing it.
banks aggravate the business cycle instead of dampen it.
"Here's the problem: As a matter of simple arithmetic, total spending in the economy is necessarily equal to total income (every sale is also a purchase, and vice versa). So if people decide to spend less on investment goods, doesn't that mean that they must be deciding to spend more on consumption goods—implying that an investment slump should always be accompanied by a corresponding consumption boom? And if so why should there be a rise in unemployment?"
Isn't the issue that total spending / income decreases? I.e., people are just putting money into the bank instead of external investments or consumption? And the banks themselves are just sitting on the cash?