Paradox of thrift

The paradox of thrift (English paradox of thrift ) states that it is the economic agents is no longer possible in an underemployed economy, because of increased savings needs to increase savings and investment in the overall economy.

The paradox of thrift in Keynes

Such an economy is described by John Maynard Keynes: The renunciation of consumption, thus saving the households for which company means a drop in demand. They reduce the production (and reduce further investment ) and trigger a negative multiplier process from. The aggregate income decreases to a greater extent than the actual decline in consumption.

While one person may at any time reduce their spending on consumer spending and increase their savings, which is not possible for all people in an economy. For everyone who reduced his expenses, thereby lowering the income of other people. Once all consume less, decrease production and income in the economy. In addition, the investments go back, so that the shared savings in the consumption of the savings in the economy not only not increased but even lowers.

Keynes himself has drawn the following comparison: If a single person gets up in a crowded movie theater, they can see better. Make the all visitors to, no one looks better, though now all must be.

The paradox of thrift after the balance mechanism

The paradox of thrift can be formally best described in the terms developed by Wolfgang Stützel balances mechanics as a special form of economic rationality trap. It is about saving by cutting spending, which always leads to the individual to a surplus income, so a saving of money. But as soon as the whole (in terms of each individual ) to the expenditure saves only the revenue decline in the economy:

• Partialsatz: The lower the expenses, the greater the income surplus.
• Size mechanics: The output fall a group of economics can only lead to a surplus income, if the complementary group overspending before and accepts.
• Global rate: A general reduction in expenditure always leads to a reduction in revenues and never a surplus income

Criticism

Some representatives of traditional theories are still based on the assumption that increased total savings would increase and reduce the supply of capital to invest, so the revenue loss of economic agents ( the aggregate demand failure) would be compensated and thus could no paradox of thrift occur. The representatives of the Viennese School recognize the paradox of thrift not as exacerbating the crisis, " only make a missed credit expansion during the growing economy for the crisis and look into the depression a conscious extension of credit to be faulty on. "