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Economics

The Paradox of Thrift in Recessionary Liquidity Traps

Quick fact

The paradox of thrift was popularized by John Maynard Keynes during the Great Depression, and it suggests that attempts to save more during a slump can actually reduce total savings in the economy.

Why this is interesting

Imagine a crowd rushing to the exits in a burning theater: each person thinks they'll be safer outside, but together they clog the door. In a recession, saving more seems prudent, but when everyone does it, it can make the recession worse—how?