The Paradox of Thrift
I am really pleased with the debate in yesterday’s thread. My thanks to everyone that took part.
Part of the discussion focused on the Paradox of Thrift. So it’s nice to see Paul Krugman posting on the same issue.
As Paul says:
The effect of this upward shift in desired savings at any given level of GDP is, paradoxically, a fall in actual savings and investment.
One key implication of the fact that we’re living in a paradox of thrift world is the folly of demands that we reduce budget deficits in the near term. Slashing spending or raising taxes right now wouldn’t just deepen the slump — it would actually make us poorer in the future, too, because it would lead to lower overall saving and investment.
Now, we won’t always face the paradox of thrift. But right now it’s very, very real.