Tag Archives: Consumer Confidence

A Keynesian Nightmare: Saving Money Helps Shorten Recessions

There’s a popular notion in Keynesian economic theory known as “The Paradox of Thrift (or Saving).” Since Keynesian economics focuses on Gross Domestic Product (GDP) — which is, frankly, a measurement of spending — saving money is paradoxical because it lowers GDP due to consumers not spending it.

The reason why economists care so much about GDP is because it’s an important indicator of where the economy is in a business cycle (boom or bust). When GDP constantly drops for a period of time, this is known as a recession. How exactly does saving money help shorten a recession?

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Why You Shouldn't Trust Biased Economic State Infographics

I don’t mind it when people support President Obama if they believe in the things that he’s doing. However, I do have a problem with people quoting economic indicators to people who might not understand them. For example, why would they quote GDP growth when that doesn’t necessarily mean that the economy is doing good? Why show the unemployment rate, but not the rate of those not in the labor force and the labor force participation rate?

The answer is simple: Either the creator of biased infographics like this don’t understand much about economic indicators or they know enough to know better, but they think you don’t. It’s not fair for people like this to mislead the country into support like this. I’m going to show how to analyze data for yourself so that you don’t get misled.

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