Dear Sir:
Kim of Washington Township, NJ asked some guidance in curtailing spending and philanthropy when her own income was greatly reduced during the coronavirus inspired lockdowns. She was concerned about others who have lost their jobs and/or depend upon charity in some way. You stated the following:
“But like most Americans, you’re caught up in a version of what economists call the paradox of thrift. While cutting back on your spending may be individually prudent, it’s collectively harmful.”
On the contrary, what is good for you is also good for the economy. Your savings does not lie idle but is funneled mainly through the banking system into longer term production. The society that saves more prospers more through both replenishing the inevitable wear and tear of current capital goods but also the founding of new businesses. The spending does not vanish; it moves from final consumption to intermediate and long-term production.
Patrick Barron
