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Jeremy Warner on the Paradox of Thrift
14th July 2009
The paradox of thrift is an important idea from Keynesian economics. Saving is regarded as positive for the economy, not least because it provides the funds to finance the capital investment needed to promote long-term growth. But if enough people start saving more at the same time, the result is a reduction on consumer demand and an even deeper recession. What is rational and virtuous for an individual might be damaging for the economy as a whole.
Jeremy Warner discusses the paradox of thrift in this article in the Telegraph.
‘Like Mr Micawber, Britain finds itself in a debtors’ prison’
The private sector of the UK economy is starting to rebuild its balance sheets by curbing spending and rebuilding saving. But one form of debt held by the private sector is being replaced by another - via enormous budget deficits. Government stimulus to the economy is needed to maintain demand and prevent an even more damaging recession. But the legacy of public sector debt will be around for many years to come.
Geoff Riley
Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.