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Issue #724: The Paradox of Thrift is Dumb

Issue #724: The Paradox of Thrift is Dumb

Apr 24, 2020
Marty's Ƀent

Issue #724: The Paradox of Thrift is Dumb

I stumbled across this thread this morning and feel compelled to share it with you freaks because it is imperative to understand that the paradox of thrift is incredibly dumb on its face. In short, the paradox of thrift made popular by Keynes states that the economy suffers, particularly and more severely during economic downturns, when individuals decide to increase their savings. By deciding to save instead of consume individuals are hurting others in the economy by lowering their potential income.

This argument falls flat on its face when you take a step back and begin to think about economics from first principles as our friends Allen and Basile have done above.

Consuming does not create wealth. Accumulating capital and using that capital to purchase goods that are able to lever that capital to produce a net benefit for society is what creates wealth. These are the actions that provide income for the individuals Keynes would have you believe are suffering from others deciding to save.

This cycle is even more pronounced when society is operating on a sound money standard that provides individuals with a better tool to measure the capital they are accumulating and acquiring from the market. When entrepreneurs take risks that pay off and provide a net benefit to society like Basile's home building example above, everyone benefits because the new goods produced from the initial investment also help make the hard currency (bitcoin) more valuable as there are more goods whose value is measured in the currency.

The paradox of thrift theory also wholly discounts the fact that different individuals decide to start saving and deploying capital at different points in time. It is incredibly stupid to assume that everyone decides to start saving and stop investing capital at exactly the same time. An inflationary currency that incentivizes people to spend instead of save to eventually accumulate capital and leverage capital that can provide a net benefit to society is the policy that actually hurts individuals in the long run because it tends to drive prices up at a far higher rate than wages.

If you want to read more about why the paradox of thrift is very stupid, I recommend this article from the Mises Institute.

Bitcoin fixes the stupidity wrought by Keynes and his minions.

Final thought...

This was a jam packed week for ya boy.

Enjoy your weekend, freaks.


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