This is the paradox of thrift: belt-tightening causes people to lose their jobs, because other people are not buying what they produce, so their debt burden rises rather than falls.
Interpretation
The paradox of thrift suggests that when everyone saves more money, overall economic demand decreases, leading to job losses.
Robert J. Shiller's quote highlights the paradox of thrift, which contends that while individuals may attempt to save money by reducing spending, this collective behavior can have adverse effects on the economy. When consumers cut back on purchases, businesses face lower sales, which may lead to layoffs and increased debt for those affected, ultimately undermining the initial goal of saving money and creating a vicious cycle that exacerbates economic distress.
In practice
Use this quote in a speech about the impacts of consumer behavior on the economy.
Those on the downside of rising economic inequality generally do not want government policies that look like handouts. They typically do not want the government to make the tax system more progressive, to impose punishing taxes on the rich, in order to give the money to them. Redistribution feels demeaning. It feels like being labeled a failure.
Speculative markets have always been vulnerable to illusion. But seeing the folly in markets provides no clear advantage in forecasting outcomes, because changes in the force of the illusion are difficult to predict.
That's the world we live in: when it comes to economics, people have emotions; it's not like chemistry or physics.
Money management has been a profession involving a lot of fakery - people saying they can beat the market, and they really can't.
We should not be focusing on quick solutions. The really important concern for policymakers everywhere is to prevent disasters - that is, the outlier events that matter the most.
If we wait until income inequality is much more severe, we will have a whole class of new superrich who will probably feel entitled to their wealth and will have the means to defend their interest. That's already gone far enough. We shouldn't let it become more extreme.
It's not that other countries steal jobs from you guys. It's your strategy. Distribute the money and things in a proper way.
The gold standard did not collapse. Governments abolished it in order to pave the way for inflation. The whole grim apparatus of oppression and coercion, policemen, customs guards, penal courts, prisons, in some countries even executioners, had to be put into action in order to destroy the gold standard.
The rich are always going to say that, you know, just give us more money and we'll go out and spend more and then it will all trickle down to the rest of you. But that has not worked the last 10 years, and I hope the American public is catching on.
Tax laws favor capital over labor, giving capital gains a lower rate than ordinary income. The rich get humongous mortgage interest deductions while renters get no deduction at all.
In our high-tech, high-skilled economy where low-skilled work is being scaled back, phased out, exported, or severely under-compensated, all the right behavior in the world won't create better jobs with more pay.
The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation.
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