Tuesday, January 6, 2009
WSJ: Families Save More And Wreck Economy
I'm not making this up. The actual headline is, "Hard-Hit Families Finally Start Saving, Aggravating Nation's Economic Woes." (HT2LRC) Here's some great analysis from the nation's "economically savvy" newspaper:
Good for you, American consumers! Too bad the government increased its debt by more than one trillion in 2008 on your behalf. (HT2 Tim Swanson)
If you would like a careful unpacking of the "paradox of thrift," see my earlier article. It's bad enough when the Nobel laureate brings it up, but now the Journal? Oh man.
As layoffs and store closures grip Boise, these two local families hope their newfound frugality will see them through the economic downturn. But this same thriftiness, embraced by families across the U.S., is also a major reason the downturn may not soon end. Americans, fresh off a decadeslong buying spree, are finally saving more and spending less -- just as the economy needs their dollars the most.
Usually, frugality is good for individuals and for the economy. Savings serve as a reservoir of capital that can be used to finance investment, which helps raise a nation's standard of living. But in a recession, increased saving -- or its flip side, decreased spending -- can exacerbate the economy's woes. It's what economists call the "paradox of thrift."
Good for you, American consumers! Too bad the government increased its debt by more than one trillion in 2008 on your behalf. (HT2 Tim Swanson)
If you would like a careful unpacking of the "paradox of thrift," see my earlier article. It's bad enough when the Nobel laureate brings it up, but now the Journal? Oh man.
Comments:
Yup, as do my otherwise intelligent and lovely colleagues, one of whom is certain that 'gold is too expensive right now'.
Hilarious! Who REALLY needs the dollars? Who is the "economy" for? Pure collectivism, of course: the group is more important than the individual. Worse, the individual exists TO MAINTAIN THE GROUP: "just as the economy needs their dollars the most." Poor economy. Here! Have my dollars, I don't really need them that badly.
"Paradox of thrift", my ***. This the smokescreen behind which the collectivists hide, calling for the individual's sacrifice.
"Paradox of thrift", my ***. This the smokescreen behind which the collectivists hide, calling for the individual's sacrifice.
# posted by 
: January 7, 2009 at 7:28 AM
: January 7, 2009 at 7:28 AM
Oh right...when we aren't in an economic down turn savings provides much needed capital and enhances the production process, but it doesn't do that in a recession. How could Mises and Hayek (and all those other classical economist) have been sooo stupid? All of a sudden economic principles completely fly out the window in an economic down turn and you have spend, spend, SPEND!
# posted by : January 7, 2009 at 9:20 AM
: January 7, 2009 at 9:20 AM
The "paradox of thrift" could easily be renamed the "consequences of foolish spending and not enough savings."
I don't see what the problem is... people are saving their money in banks still. That should be supplying capital for loans, no?
The most annoying thing about the alleged 'paradox of thrift' is that it was already done away with when it was known as 'the evil of thrift', and it was probably knocked down by learned men in iterations preceding that. It just seems to be one of these ideas that get put down for a few decades or so only to come roaring back again.
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