Hey Government! You’re Doing it Wrong! [The Invisible Hand – Episode Eight: The Paradox of Thrift]

“… there is a concept in economics called The Paradox of Thrift. It’s the idea that when everyone in an economy saves money, all at the same time, it can actually result in a loss of savings. If no one’s spending, then no one’s earning either.”

This was a real “ah ha!” moment for me when heard this stated on this podcast. This is what has bugging me about all these austerity measures being thrust on unwilling populations in Europe and elsewhere. I’m not quite sure who it helps exactly. The exact time government should be stepping up is during an economic downturn and this appears to be the exact time that they fold up shop. At least that appears to be the current thinking among governments.

In my opinion, during a recession or economic downturn a government’s role is to support the people whether they voted for them or not with various programs and to help those constituents who are the worst off to improve their situation. This direction should be coupled with the equivalent vigilance to avoid anyone taking advantage of the system without contributing. This vigilance should apply equally to “welfare scammers”, lobbyists, campaign contributors and elected officials. I’m not sure where this puts me in the political spectrum but I suspect I’m leaning towards the left end of it.

Even the language in the media is very negative when government programs are mentioned. Referring to old age pensions as “entitlements” is disingenuous at best and propaganda at worst. The word entitlement has taken on the connotations of entitled which, in the common vernacular, has a pretty negative meaning (See Definition #1 on the Urban Dictionary). A person works his or her whole life for that pension and during that time supports everyone who retires before. To make it sound like that pensioner is somehow screwing over the system pisses me off.

Now, I’m not advocating for excessive government spending on any pet project that comes along. However, it seems to me that every government program I see coming from anywhere is greeted favourably by the markets but strongly criticized by the citizens. The extreme measures that the government in Cyprus was willing to go to the receive bailout money from the IMF and the Eurozone is an example. Prior to the mass protests against this move, European leaders and the IMF were quite happy with the solution Cyprus was trying to impose on its population.

I think it is time to rethink what the priorities of government should be. Increasingly, governments seem out of touch with the electorate and seem to be more worried about supporting “the markets” and their goals than looking after its population. Also, the response shouldn’t be all-or-nothing. There is a smarter way to get things done and stimulate a weak economy without bankrupting a country.

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