When financial times are tough, individuals and families tend to tighten
their belts, and try to use their money more frugally. You'll sometimes
hear politicians saying governments should do the same - pledging
austerity budgets, and restrained spending.
But there is a concept in economics called The Paradox of Thrift
the idea that when everyone in an economy saves money, all at the same
time, it can actually result in a loss of savings. If no one's spending,
then no one's earning either.
That's why economists who follow the theories of John Maynard Keynes
advocate for governments to get more involved in times of economic
downturn. Keynesians favour job-creation and stimulus spending over
This week, we'll learn why Yale economist Robert Shiller
says the Paradox of Thrift, a
troubled baby-sitting co-op
, and an 18th-century poem
, could provide
good models for today's discussions of global economics.