The paradox of thrift

60 second adventures in economics Number 2. The paradox of thrift Much like a child getting his pocket money, One of the biggest economic questions is still whether it's better to save or spend. Free marker is like Hayek and Martin Friedman say that even in difficult time it's best to be thrifty and save. Bank then channel the savings into investment in new plants, skills, techniques that let us produce more. And even if this new technology destroys jobs wages will drop and businesses hire more people so unemployment falls again. Simple. At least in the long run. But then a "live fast, die young" kind of chap called John Maynard Keynes chiefly pointed out that in the long run we are all dead. So to avoid the misery of unemployment, the government should instead spend money to create jobs, whereas if a government tightens its belt when people and businesses are doing the same less is spent, so unemployment gets even worse. That is the paradox of thrift. So instead they should spend now and tax later, when everyone is happy to pay. Though making people happy paying tax is something even Keynes didn't solve. Subscribe to the Open University