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.
Let us never forget this fundamental truth: the State has no source of money other than money which people earn themselves. If the State wishes to spend more it can do so only by borrowing your savings or by taxing you more. It is no good thinking that someone else will pay - that 'someone else' is you. There is no such thing as public money; there is only taxpayers' money.
Investing in women is smart economics, and investing in girls, catching them upstream, is even smarter economics.
Economics taught in most of the elite universities are practically useless in my context. My country is dominated by drug economy and a mafia. Textbook economics does not work in my context, and I have very few recommendations from anybody as to how to put together a legal economy.
The only way that has ever been discovered to have a lot of people cooperate together voluntarily is through the free market. And that's why it's so essential to preserving individual freedom.
Some degree of inequality in income and wealth, of course, would occur even with completely equal opportunity because variations in effort, skill, and luck will produce variations in outcomes.
Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes a bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill done.
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