In Case You Missed It: The Paradox of Thrift

BY busadmin  April 16, 2009 at 1:51 PM EST

Editor’s Note: On last night’s NewsHour, Paul examined the paradox of thrift. Here’s MIT’s Simon Johnson explaining the phenomenon in the segment:

SIMON JOHNSON, MIT Sloan School of Management: Paradox of thrift is the idea that you try — everyone tries to increase their savings, so desired savings goes up, thrift being savings, but the act of trying to save pulls down the entire economy, gives you a big recession or maybe even a depression, and total savings don’t go up. Maybe they even go down. So everyone trying to save leads to a big slowdown and less savings. That’s a paradox.