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Paradox Of Thrift

Microeconomic Savings can convert to Macroeconomic Costs

Hanns-Jürgen Hodann
Microeconomic measures can produce counterintuitive 'emergent' effects at the macro or systemic level. The commendable act of saving money by individuals during uncertain economic times has the perverse macroeconomic effect of making a recession  worse: in aggregate there will be less money available for spending, suppressing demand for goods and services. Economists call this effect 'the paradox of thrift'. Similarly, logical efforts by companies in such conditions to reduce their wage bill or their postponement of investment decisions will reduce spending in the economy  and deepen the economic downturn.

What can be done to counteract this harmful dynamic? The missing spending can be replaced by government spending: governments have it within their power to effectively counter economic downturns!

Economy Emergent Phenomena Fiscal Spending Paradox Of Thrift

  • 1 year 9 months ago

Clone of Microeconomic Savings can convert to Macroeconomic Costs

Julie Maurer
Microeconomic measures can produce counterintuitive 'emergent' effects at the macro or systemic level. The commendable act of saving money by individuals during uncertain economic times has the perverse macroeconomic effect of making a recession  worse: in aggregate there will be less money available for spending, suppressing demand for goods and services. Economists call this effect 'the paradox of thrift'. Similarly, logical efforts by companies in such conditions to reduce their wage bill or their postponement of investment decisions will reduce spending in the economy  and deepen the economic downturn.

What can be done to counteract this harmful dynamic? The missing spending can be replaced by government spending: governments have it within their power to effectively counter economic downturns!

Economy Emergent Phenomena Fiscal Spending Paradox Of Thrift

  • 1 year 8 months ago