by Public debt and Keynes’ paradox of thrift For although the amount of his own saving is unlikely to have any significant influence on his own income, the reactions of the amount of his consumption on the incomes of others makes it impossible for all individuals simultaneously to save any given sums. Every such attempt to save more by reducing consumption will so affect incomes that the attempt necessarily defeats itself. It is, of course, just as impossible for the community as a whole to save less than the amount of current investment, since the attempt to do so will necessarily raise incomes to a level at which the sums which individuals choose to save add up to a figure exactly equal to the amount of investment. When applied to the question of public
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Public debt and Keynes’ paradox of thrift
For although the amount of his own saving is unlikely to have any significant influence on his own income, the reactions of the amount of his consumption on the incomes of others makes it impossible for all individuals simultaneously to save any given sums. Every such attempt to save more by reducing consumption will so affect incomes that the attempt necessarily defeats itself. It is, of course, just as impossible for the community as a whole to save less than the amount of current investment, since the attempt to do so will necessarily raise incomes to a level at which the sums which individuals choose to save add up to a figure exactly equal to the amount of investment.
When applied to the question of public debt, it can be argued that thriftiness and an exaggerated eagerness to pay back the debt lead to counterfinal results — instead of shrinking the debt mountain, it will in fact only make it bigger.
A starving state reduces the economic activity level, incomes, investments, and tax revenues. Unemployment increases and unemployment payments grow — ultimately resulting in even higher public debt.
Today most mainstream economists are focusing on problems following public debt being too high. Based on Keynes’ reasoning, yours truly would rather argue the focus ought to be on problems following public debt being too low.