Paradox of Thrift
This article is from Interfluidity a blog written by Steve Randy Waldman on finance and policy. If you like the article check out Pimco’s piece on deleveraging.
Article Introduction (Via Interfluidity Blog)
For those of you who might not recall, the paradox of thrift posits that if we all individually cut our spending in an attempt to increase individual savings, then our collective savings will paradoxically fall because one person’s spending is another’s income – the fountain from which savings flow.
Article Excerpt (from Interfluidity Blog)
Encouraging people to go shopping in order to help the economy is not “second best” policy. It’s a desperate last resort. We’re not at a point where there’s so little economic activity that we can’t foresee future wants. We’re at a point where people are beginning to shift from investment to storage because of a well-deserved loss of confidence in the financial system.
Relevant article: Click here for a Pimco article on Deleveraging