Thrift Paradox: Why Saving Money During a Crisis Destroys the Economy You Are Trying to Survive

When a financial crisis hits, the most rational, responsible thing an individual or a business can do is to cut back on spending and save money. It is the fundamental rule of personal finance. Yet, when millions of people and corporations make this exact same rational decision simultaneously, it triggers an economic catastrophe. This is the cruel irony of macroeconomics: the Paradox of Thrift.

Coined by John Maynard Keynes, this paradox illustrates how individual prudence leads to collective...