Another youtube clip that’s only ±60 seconds long:

Savings and frugality: it’s old school.

Here’s the trouble (which John Maynard Keynes eventually pointed out): money must flow.

  • Employees get paid by the companies they work for.
  • Employees then spend that money.
  • That money is the “sales” brought in by companies.
  • These companies then use that money to pay salaries to their employees.

When people are thrifty and save their money, this makes for lower sales. So companies can’t pay the same salaries that they used to, and people get fired. The people that get fired get forced to spend their savings.

It might sound simplistic, but it’s the reason that the Japanese government is aiming for a 2% inflation rate (to stop people from saving), and it’s the reason that Krugman and other Keynesian economists blame slow recoveries on savings gluts.

Thrift only makes sense for the individual if the rest of society is spendthrift.

At least, that’s the general idea.