I’m a Registered Nurse and not an economist, so forgive me if my questions seem a bit naive. I’ve only been researching Austrian Economics for a few months. It has certainly exposed some of the major flaws of Keynesianism. For example, if I’m stranded on a desert island with all the employment and a…

Yes, and no. What matters isn’t the nominal amount of money the worker is receiving as a wage, but the goods and services he can purchase with that money. If prices lower by 75%, and your weekly paycheck lowers by 50%, then that’s still the same thing as if prices stayed the same and your paycheck …

I started writing an essay about the paradox of thrift yesterday. Here’s the opening: The paradox of thrift is often cited as justification for government to engage in monetary and fiscal stimuli. In this view, an unfettered market is intrinsically unstable. Capricious and rapid declines in total s…

We are in a “Liquidity Trap” of sorts, just not the one created by the Keynesian “Paradox of Thrift”. The Current Liquidity Trap is the result of the central banks making interest rates so low that banks on margin prefer to lend to governments or just store their excess reserves at tiny interest rat…

Thanks! I look forward to seeing the rest of the essay.

I understand your point about “real wages,” but I would still think that shrinking income could lead to defaults on loans. If the value of money starts to climb due to hoarding and my salary goes down significantly, I may not be able to pay my mortgage anymore. I might not have a choice but to defau…

The same problem exits in reverse when there is inflation. The lender gets paid in zimbabwe type money when he originally released good money. Why is nobody losing sleep over this side of the problem? Truth is, of course deflation is bad for the borrower, as inflation is bad for the lender. But th…

First, thank you for laying it out so clearly. I look forward to the rest of the essay. Now I’ll try my hand at responding to the argument, for practice.

If I understood Lee Kelly’s post, I believe he was only explaining the arguments behind the paradox of thrift (not trying to make a case for it himself) and intends to expose weaknesses in the argument later on, showing that the paradox does not hold true in a free market, but only in a fettered Key…

I think so. I mean if your money went up 5% a year, that’s nice. But what if you wnated to make, say, a new movie, and needed a lot of money to make it? Big projects will always need loans.

Questions about deflation and "the paradox of thrift"

Economics Economics Questions

muridsilat March 27, 2010, 12:08am 11

I was actually just posting that exact same thought in a related thread: Deflation and lending

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Questions about deflation and "the paradox of thrift"

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