Paradox of thrift - Wikipedia

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2024-06-07 00:00:10

The paradox of thrift (or paradox of saving) is a paradox of economics. The paradox states that an increase in autonomous saving leads to a decrease in aggregate demand and thus a decrease in gross output which will in turn lower total saving. The paradox is, narrowly speaking, that total saving may fall because of individuals' attempts to increase their saving, and, broadly speaking, that increase in saving may be harmful to an economy.[1] The paradox of thrift is an example of the fallacy of composition, the idea that what is true of the parts must always be true of the whole. The narrow claim transparently contradicts the fallacy, and the broad one does so by implication, because while individual thrift is generally averred to be good for the individual, the paradox of thrift holds that collective thrift may be bad for the economy.

It had been stated as early as 1714 in The Fable of the Bees,[2] and similar sentiments date to antiquity.[3][4] It was popularized by John Maynard Keynes and is a central component of Keynesian economics.

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