A new booklet from the American Enterprise Institute echoes the famous belief of policy maker John Maynard Keynes who warned of a “paradox of thrift” by governments that should be spending in record amounts during recessions.
The article defines inflation as lower prices, which are bad if you’re selling and good if you’re buying. Why did Keynes side with the sellers? Why did he create catchy, bogus theories like the â€œparadox of thriftâ€? Possibly because he planned to sell his home or stocks, and if people didn’t keep spending, and bidding up prices, then his home value might fall.
Thrift or savings occurs when one has bought all needed items, such as a warm coat or food. Spending beyond that amount can jeopardize future purchases, such as education costs for one’s children, and retirement plans. No paradox here.
The same logic same to governments, which are just the combined financial plans of many individuals. Government spending in â€œrecord breaking amountsâ€ can prevent accumulating funds for future purchases. No paradox here either.
There’s only a â€œparadox of Keynes’s home.â€ Spend, spend, spend, to bid up prices, including the price of Keynes’s home.