Marginal Propensity to Consume 07: The Paradox of “Paradox of Thrift”

 

Back to the reality, the gross national saving (S in macroeconomics) is what can get the aggregate dream of better life to come true.

“Paradox of Thrift.” A couple of celebrated names are closely associated with this term of fame. Probably, on the other hand, Thomas Malthus is the first conceiver of the idea. The essence at any rate: The larger the GNS (S ↑), the smaller the MPC (ΔC/ΔY ↓), the smaller the real GDP (Y ↓). Therefore, the smaller will the gross national saving become (S ↓) at the end of the day. In short, “the more savings we try the fewer savings we make.”

             Nice try!

             A lining in the dark cloud: The saving would never implode the economy because the private saving, as opposed to fiscal dis-saving, does not multiply; or equivalently the multiplier shalt not be in the negative territory by decree of the Treasury.  

             To the rest of us: “Believe it or not!” Which is really paradoxical in the first place, the saving aka “thrift” or the “paradox”?

Paradox of “the Paradox.” In various regards, the popular “paradox of thrift” is alien at best, Eternal at worst, or Malthusian at least.

             First of all, we cannot make such a call, “The community of Cambridge, where the child Paradox O’Thrift was born, belongs to a failed commonwealth.” Second in line alien to “Failed Nations,” GASP (for generally accepted saving principle) is “Keeping at It” (to Paul Volcker) rather than “throwing into the sea” (from Thomas Malthus). Thirdly ante Eternity, the real time never crosses such a space as the plane (L², L for the length dimension) of “Keynesian Cross” as in macroeconomics.

             Blessedly, we, macroeconomists or otherwise, are in Here. As the child arrives on Earth, it will be christened Prescience D’Investment. We shall enjoy a better life “Owing to It.” Hurray, Prescience D’Investment!

             Paradox O’Thrift, long live peacefully in your place of Eternity!

Don’t Alloy ‘em Together. Adam Smith when referring to self-interest or laissez faire has the Hayekian rule of law in mind. By definition, moreover, the “invisible hand” governs the market of a final good such as meat, bread or beer as opposed to “(financial) markets” such as “the money market” tightly controlled by the government.

             Fact 1: “The market” works and distributes (T^-1) while “markets" balance (T⁰).

             Fact 2: As opposed to markets, the market is immune from Extraordinary Popular                            Delusions and the Madness of Crowds (Charles Mackay, 1841). 

             Fact 3: The invisible hand has nothing to with a financial meltdown, a liquidity                               crunch, and the like.

After all:

             Fact 4: “The product market” is one and “the money market” is another.

             Fact 5: The IS curve from the one market claims, “Mom, the LM curve is alien.”

             Fact 6: The LM curve from the other market rebuts, “Dad, the IS curve is a                                      different species.”     

             “Happy ever after” or “Never heard from”? The rest of us had better not care.

 

By the way of the commonwealth, a mule is not reproductive in “real,” yet it can be productive in “nominal” (monetary). Sorry, we don’t know for that matter anything about Chimera.