The Paradox of Thrift: Rip

Perhaps the single most destructive tenet of Keynesian economics was its denigration of saving. Keynesianism has been used to justi~’ wasteful spending, massive deficits, and one after another scheme to redistribute wealth from those who would save it to those who would spend it. In keeping with this anti-saving doctrine, during the Christmas sellingseason of 1991, then President Bush made a big to-do ofbuying a pair of woolen socks at a suburban shopping mall to try to stimulate consumer spending. And, during his first year in office, President Clinton referred to every increase in spending that he proposed as an “investment.” But things are changing. The 14th edition of Paul A. Samuelson’s Economics, a textbook that popularized Keynesian economics and has been coauthored with William D. Nordhaus since the 12th edition, does not even mention the so-called paradox of thrift. Instead of disparaging saving, this edition contains an extensive discussion of the low U.S. saving rate and a comparison of that rate to the much higher saving rates in Germany and Japan. Probable reasons for the low U.S. saving rate are given as deficit spending, social security, relaxation of restrictions against consumer borrowing, and a decline in the Protestant ethic (Samuelson and Nordhaus 1992: 444—46). To the extent that Samuelson’s Economics chronicles the evolution of mainstream economic opinion, one can say that Keynesianism— and its concern with the paradox of thrift—has now come to an end. At this juncture, it is useful to review what exactlywas the Keynesian revolution in economics and why the paradox of thrift is no longer in vogue.