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Keyne's paradox of thrift is hogwash. If the occasional person is thrifty, there's no problem. If everyone is collectively "too thrifty", then we've got a pro

Keyne's paradox of thrift is hogwash. If the occasional person is thrifty, there's no problem. If everyone is collectively "too thrifty", then we've got a problem, but this isn't the cause of the problem, it's a symptom. What does it mean when everyone is saving? It means that there is some kind of uncertainty or fear which is making people forego current consumption in favor of future consumption. This isn't a natural state of human affairs, since we tend to value things today more than things tomorrow. The extra "thrift" happens because of political or economic uncertainty. Political uncertainty is fickle, you can't predict it or plan for it. However, saving is the correct response to economic uncertainty, and it's what's responsible for the eventual recovery after a crash.

FabHK 9y ago
What you say doesn't invalidate the paradox. In fact, that is precisely the paradox - that the individually responsible and rational thing (more saving in the face of uncertainty) actually accelerates the problem: an economy crashing down. Among the policy lessons would be to reduce uncertainty, and encourage consumption (in the economic sense), e.g. via government provided stabilisers (food stamps, unemployment benefits, etc.). > saving is the correct response to economic uncertainty, and it's what's responsible for the eventual recovery after a crash. That's a very contentious statement, and personally I'd be rather careful in casually contradicting eminent economists on economic matters.
- oppositelock 9y ago
  Which eminent economists? You get two of them in a room and you get three different opinions. Here's one economics PHd wielding economist refuting the paradox of thrift. http://www.econlib.org/library/Columns/y2009/Murphythrift.html http://www.econlib.org/library/Columns/y2009/Murphythrift.ht... Here's an eminent one refuting it, in case the Nobel prize counts: https://mises.org/library/hayek-paradox-saving https://mises.org/library/hayek-paradox-saving Here's my issue with Keynesians and neo-Keynesians. They have zero concept of capital, it's all about cash flow - spending, saving, debt. They stimulate by printing, temper by taxing, etc. They ignore the effects of such behavior on capital, and end up amplifying the cycles they try to prevent. This ties into monetary policy and deficit spending as well, but that's way too much of a tirade for Hacker News.
  - FabHK 9y ago
    As I said, it's contentious, and Nobel-price-level economists are wrangling with it. That's why I'd be careful making definite statements about it casually. Note that Hayek wrote nearly a decade before Keynes, nearly a century ago, and Keynes has held up remarkably well in the last decade. The invocation of Say's law strikes me as insufficient to strike down the paradox of thrift.
- redahs 9y ago
  A liquidity glut is caused by savings exceeding desired investment. A shortage in desired investment is caused by an undersupply of investment opportunities. An increase in the supply of real investment opportunities can be incentivized by subsidizing public inducement prize competitions. The 'stabilizers' you propose subsidize the income of individuals but do not necessarily change individuals preference for savings vs consumption.
  - FabHK 9y ago
    Poorer people typically have a lower propensity to save than rich people, though, so redistribution does influence the overall savings rate.
incompatible 9y ago
If people are thrifty, so need less money and work less, the economy will be smaller. That's a choice though, not a problem.
- redahs 9y ago
  If people are overly-thrify, it simply means that there is an under-supply of profitable investment opportunities for them to allocate their savings and labor toward. It is possible to increase the supply of real investment opportunities (investment opportunities which do not depend upon the extraction of "rent" from other investors) through the use of public inducement prize contests. It is possible for government to subsidize the creation of real investment opportunites by raising the nominal value of public inducement prize contest prize pools.

FabHK 9y ago

What you say doesn't invalidate the paradox. In fact, that is precisely the paradox - that the individually responsible and rational thing (more saving in the face of uncertainty) actually accelerates the problem: an economy crashing down. Among the policy lessons would be to reduce uncertainty, and encourage consumption (in the economic sense), e.g. via government provided stabilisers (food stamps, unemployment benefits, etc.). > saving is the correct response to economic uncertainty, and it's what's responsible for the eventual recovery after a crash. That's a very contentious statement, and personally I'd be rather careful in casually contradicting eminent economists on economic matters.

oppositelock 9y ago
Which eminent economists? You get two of them in a room and you get three different opinions. Here's one economics PHd wielding economist refuting the paradox of thrift. http://www.econlib.org/library/Columns/y2009/Murphythrift.html http://www.econlib.org/library/Columns/y2009/Murphythrift.ht... Here's an eminent one refuting it, in case the Nobel prize counts: https://mises.org/library/hayek-paradox-saving https://mises.org/library/hayek-paradox-saving Here's my issue with Keynesians and neo-Keynesians. They have zero concept of capital, it's all about cash flow - spending, saving, debt. They stimulate by printing, temper by taxing, etc. They ignore the effects of such behavior on capital, and end up amplifying the cycles they try to prevent. This ties into monetary policy and deficit spending as well, but that's way too much of a tirade for Hacker News.
- FabHK 9y ago
  As I said, it's contentious, and Nobel-price-level economists are wrangling with it. That's why I'd be careful making definite statements about it casually. Note that Hayek wrote nearly a decade before Keynes, nearly a century ago, and Keynes has held up remarkably well in the last decade. The invocation of Say's law strikes me as insufficient to strike down the paradox of thrift.
redahs 9y ago
A liquidity glut is caused by savings exceeding desired investment. A shortage in desired investment is caused by an undersupply of investment opportunities. An increase in the supply of real investment opportunities can be incentivized by subsidizing public inducement prize competitions. The 'stabilizers' you propose subsidize the income of individuals but do not necessarily change individuals preference for savings vs consumption.
- FabHK 9y ago
  Poorer people typically have a lower propensity to save than rich people, though, so redistribution does influence the overall savings rate.

incompatible 9y ago

If people are thrifty, so need less money and work less, the economy will be smaller. That's a choice though, not a problem.

redahs 9y ago
If people are overly-thrify, it simply means that there is an under-supply of profitable investment opportunities for them to allocate their savings and labor toward. It is possible to increase the supply of real investment opportunities (investment opportunities which do not depend upon the extraction of "rent" from other investors) through the use of public inducement prize contests. It is possible for government to subsidize the creation of real investment opportunites by raising the nominal value of public inducement prize contest prize pools.