Should you spend or save?

Back in high school, I remember my economics teacher talk about John Maynard Keynes and his principles. I admit, I hated that subject. It is the most boring subject after Calculus. But I wish I paid more attention before. At least I would be more comfortable talking about the economy without sounding like an idiot.

Anyways, Keynes was hailed as the father of modern economics. Critics called him as the greatest and the most influential economist of the 20^th century. He became popular during the 1930’s particularly during the Great Depression. So why am I looking back? Because of Keynes’ heavy influence on the current financial situation.

Keynes had this theory that saving money can be disastrous to an economy, especially if everybody is saving too. He coined the term “the paradox of thrift” to describe that phenomenon. Since everyone is minimizing expenditures, there is no money circulating the market which resulted to job losses and business closures.              

In Keynes theory, he explained that in a normal economy, there is a high level of employment, and everyone is spending their earnings as usual. But when consumers’ confidence in the economy get shaken (like when recession came in), consumers believed that they can weather the coming economic hardship by saving their money. To sum that up, people hoard money in difficult times, but times become more difficult when people hoard money.

He also stated in his theory that the only cure for this is by putting more money into people’s hands. And that’s what the US is about to do. The government is preparing tax rebates and generating jobs to stimulate the economy. So now comes the tricky part: should we spend to help the economy or should we save for the rainy season?

The following posts on whether we should spend or not are helpful. Just click on the links below.

Forex Trading Videos

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My Stimulus Tax Credit: Should I Spend or Save My Tax Break?

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We Need Real Jobs

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“Sustainable Spending”…a new measure for the Economy?

How many times have you heard “an increase in consumer spending” portrayed as positive news? In John Tamny’s recent article “Saving as a Stimulus“, he references the headline “Hard-Hit Families Finally Start Saving, Aggravating Nation’s …

Spending Money to Save Money

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Three Economic Crises In One

Third: a trade crisis. Global spending and saving patterns are badly askew. High-saving Asian countries have relied on export-led growth that, in turn, has required American consumers to spend ever-larger shares of their income. …

Should You Save During an Economic Downturn?

What really has the experts in a tizzy is that most of the saving that is happening now is due to reduced spending. In other words, people aren’t making more money and then saving some of it, rather, they are making less money and …