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.
I have come to a resolution myself as I hope every good citizen will, never again to purchase any article of foreign manufacture which can be had of American make, be the difference of price what it may.
China adopted a capitalist system in the 1980s, and they went from a 60% poverty rate to 10%.
Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once unthinkable dosages will almost certainly bring on unwelcome after-effects. Their precise nature is anyone's guess, though one likely consequence is an onslaught of inflation.
A just wage for the worker is the ultimate test of whether any economic system is functioning justly.
The hidden hand of the market will never work without a hidden fist -- McDonald's cannot flourish without McDonnell Douglas, the builder of the F-15. And the hidden fist that keeps the world safe for Silicon Valley's technologies is called the United States Army, Air Force, Navy and Marine Corps.
Without calculation, economic activity is impossible. Since under Socialism economic calculation is impossible, under Socialism there can be no economic activity in our sense of the word All economic change, therefore, would involve operations the value of which could neither be predicted beforehand nor ascertained after they had taken place. Everything would be a leap in the dark. Socialism is the renunciation of rational economy.
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