Hi, I wrote this attempt at a reductio ad absurdum of the Paradox of Thrift. It is very brief, and it is purely logical, not empirical. I am not sure it is correct and I would like to know what you guys think. Thank you.
If I get it right, you are saying:
People saving money is the same as demand for money increasing, which is the same as employees willing to work for lower wages, which contradicts wages being sticky.
But I think there is a flaw in that reasoning. Say we have two streets, A Street and B Street. Assume the people on A street are boycotting cable TV for some reason.
One day the people on B Street start buying up cable TV like there is no tomorrow.
By your reasoning we would argue:
B Street buying up cable is the same as demand for cable increasing, which is the same as people on A Street wanting more cable, which contradicts the fact that they are boycotting cable.
The flaw in both cases is the same. Just because demand for money has increased in the aggregate does not mean every sector has increased demand for money.
Thank you. You mean, just because aggregate demand for money has increased does not mean that employees have an increased demand for money.
Actually I had thought of this objection, but for some reason it did not trouble me, because it does not seem that Keynes is saying “unemployment will increase if everybody except employees starts spending less”.
However you’re right there’s a non sequitur. (At least it seems I’ve proved the inconsistency in the special case where there is a generalized increase in the demand for money, right?)
“(At least it seems I’ve proved the inconsistency in the special case where there is a generalized increase in the demand for money, right?)”
Yep.