DB's Pixnet

20120104 Bloomberg Businessweek

Bloomberg Businessweek, December 26, 2011-January 8, 2012
Page 48
Economics
When Frugality Fails, By Peter Coy

...The very human tendency to mix up economics and morality is what makes the Keynesian case for expansionary government policy hard for politicians to defend. From the standpoint of righteousness and clean living, the Germans are way ahead of the Greeks, the Portuguese, the Spaniards, and the Italians. Saving and investing are virtuous for families; it's hard for people to imagine that on the scale of nations, too much frugality can cause problems.

Frugality can backfire, however--and in 2011, it did. Keynes had put his finger on the problem, calling it the "paradox of thrift." One person's spending is another's income, he observed. So when everyone spends less in a recession, incomes fall. The more people try to save, the more the economy slows, and the harder it gets to put money aside.

There's even a related "paradox of toil." It says that when an economy is stuck in a rut, with interest rates at or near zero, cutting wages can backfire. Wage cuts lead to expectations of deflation and cause employment to fall rather than rise, says the person...

DB, SSN057-86-4042,
January 4, 2012, Wednesday,
National Central Library,
Taipei City