Austerity, the Paradox of Thrift and a great graph.

Think Left

Definition of ‘Paradox Of Thrift ‘

The notion that individual savings rather than spending can worsen a recession, or that individual saving is collectively harmful. This idea is generally attributed to John Maynard Keynes, who said that consumer spending contributes to the collective good, because one person’s spending is another person’s income. Thus, when individuals save rather than spend, they cause collective harm because businesses don’t earn as much and have to lay off employees who are then unable to save. Therefore, an increase in individual savings rates is believed to create a flattening or diminishing of the total savings rate.

Clearly, the ‘paradox of thrift’ applies equally whether individuals are saving, paying off their debts or having their wages are undercut… in all these situations, spending contracts, demand falls, and businesses lay off workers and/or stop investing.  The effect is a positive feedback loop which deepens the recession.

George Osborne of course…

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