IS THERE REALLY A PARADOX OF THRIFT?

During a time of economic crisis, should one be thrifty and save money? Or, is better to spend as much as possible to stimulate the economy? In other words, is thriftiness a necessary step for a nation in crisis, or is national spending a key to recovery?

On Tuesday, April 14, approximately 80 economists, journalists, and students attended a panel discussion regarding the so-called “paradox of thrift,” in hopes of answering whether thriftiness helps or hurts the economy. The King’s College co-hosted the event with the Institute for American Values and Templeton Press.

Panelists included Robert Frank, professor of economics at Cornell University and a New York Times contributing columnist, and Justin Fox, Time magazine’s business and economics columnist. David Blakenhorn, president of the Institute for American Values and author of Thrift: A Cyclopedia, moderated the discussion

The “paradox of thrift,” first described by British economist John Maynard Keynes during the Depression era, has been resurrected as an argument for economic recovery today. Those who subscribe to it say that spending, not saving, is the key to economic recovery. They believe that what is good for the individual—thriftiness—may have unintended consequences for the whole nation. Yet others say thriftiness is required and necessary during these economic times, and question whether it is in the national interest to denigrate savings. Might not it be bad for society to have more people living on credit and falling deeper into debt?

Fox argued that Americans should spend now in order to avoid the negative consequences accompanying a drop in consumption, such as declines in unemployment. He also discussed Keynes’s theory and the rationale behind it.

Frank did not disagree with Fox explicitly. But while he agreed that the paradox of thrift is real and encouraged people to spend, he recommended smart, principled spending, rather than excess purchasing. During a recession or a time of unemployment, he argued, Americans should not be afraid to go in to debt. Government should also spend large amounts of money to stimulate the economy. He thought that individuals, such as Congressmen John Boehner (R-OH), who opposed President Obama’s stimulus package, were foolish.

Blankenhorn disagreed with both men. As a self-described “thrift nut,” he said he doesn’t want people thinking there’s anything paradoxical about thrift. For him, foolish decisions are always foolish—there’s no paradox about it.

King’s COO Bret Schundler, who formerly worked with investment bank Salomon Brothers and is the former mayor of Jersey City, NJ, disagreed with Fox and Frank that deficit spending is the solution to the current economic crisis. Schundler pointed out that both government and individuals had been spending lavishly prior to the economic crisis, “not with income but with debt, at an unsustainable level. It’s no surprise that when something’s unsustainable, it can’t be sustained.”

A proper solution, he said, would “focus on how you can put people to work productively; lower tax rates; increase property rights where people feel they can invest and get a yield and not get it confiscated; move toward an educational choices system where people actually get an education; and think about how you increase choice in health care.”

The event was thought-provoking. David Lapp, a senior at The King’s College, said the argument for thriftiness prevailed for him. “There has not been enough of thrift,” he said, agreeing with Blankenhorn. “We would do well to talk about it more.”

“At the individual level,” Lapp added, “we need to be more thrifty. Maybe we get Starbucks once a week instead of three times a week. We need to ask ourselves what our grandparents used to ask themselves, ‘Am I living within my means?’”