View Full Version : The "Paradox of Thrift"

mick silver
11th November 2008, 12:04
Why there is no "paradox of thrift"

The "paradox of thrift" holds that what is good on an individual basis can be bad on an economy-wide basis; specifically, it stems from the idea that an increase in an individual's savings may benefit that individual, but if many individuals increase their savings then the result will be a weaker economy.

The idea that what's healthy on an individual basis can be unhealthy on an economy-wide basis doesn't make sense because the economy is just a large collection of individuals, each of whom acts to increase his/her own satisfaction. However, it is firmly fixed in the minds of many economists and commentators because they make the false assumption that economic growth is driven by consumption. If you believe that consumption-related spending is the driver of economic growth then you will naturally view an economy-wide increase in current savings -- and a concomitant reduction in current consumption -- as a threat.


11th November 2008, 12:08
The corollary to the "paradox of thrift" is "greed is good".