Alžběta

“Thrift is a great revenue”1.

The question of how to satisfy the endless people's needs using limited resources has long been facing mankind. The idea that frugality could achieve this goal formed a long time ago. Marcus Tullius Cicero, well-known Roman politician and philosopher, stated, that thrift is a great revenue for the society already in I century B.C. and for hundreds of years this opinion remains relevant. Nevertheless, thrift - especially excessive thrift - may have a negative impact on economics and even lead to crisis. Paradox of thrift (also known as paradox of saving) claims it.

The paradox could be articulated the following way: the more we save for a “rainy day”, the faster this day would come. This statement is called a “paradox”, because it seems to be against human intuition; however, the more people save money, the less aggregate demand is. And this looks logically, assuming that assessment of the whole economics is much influenced with the Gross Domestic Product (GDP) number. The GDP as “sum of the gross values added of all resident institutional units engaged in production”1 includes values of consumption goods, investments, goods bought by government, export with import deduction2. Savings are not included there.

Savings could be defined as some amount of income of population accumulated in order to meet some needs in the future. As savings often used for buying shares or other financial instruments, in classical economic theory savings practically considered being a part of investments (or equal to it). So, according to the classical economic theory, savings are enriching country’s economy and included in GDP in the form of investments. This point of view toward savings is fair, but it strongly depends on what do people do with savings, what are people’s goals. Of course, people save for different reasons and it has various impacts to the economy3. Assuming people buy shares or put money to the banks, savings definitely could be seen as investments. Though, significant part of population does not trust banks and prefers to keep money home, being more afraid of banks bankrupting than of depreciation of money. However, classical economic theory ignores this fact and the paradox of thrift is a subject of only Keynesian economics.

Keynesian economic theory states, that for economic growth increasing of aggregate expenditures is needed, what together with multiplier effect would lead to increasing of income as well. All the money removed from the expenses flow reduces aggregate income and could push the economy into a recession or depression. The conclusion coming seems paradox, but true: the more money accumulated in economy the less wealthy economy becomes. Anyway, this opinion is widely used, for example, Paul Robin Krugman, Nobel Prize winner in economics, in his article When Consumers Capitulate4 uses this paradox as an argument stating, that households should be replaced with government to revitalize the economy. He explains, how savings could affect economy negatively, stating that the moment he writes about (year of 2008) is the worst moment to start saving, what has happened in the USA.

In the stage of equilibrium, total income (and with it demand) must equal total output, and total investments must equal total savings. Rise of savings faster than rise of relation between investments and output (what is always likely, because of human herd instinct, and distribution of money depends on people having these money only) while other things being equal or slowly growing will move the equilibrium point at which income equals output and investments equals savings to lower values. Also, if population saves more money and keep it, total revenues for companies will decline5. This could decrease economic growth, make wages lower and, perhaps, lead to downsizing. The population's total savings would remain the same or even declined because of weaker economy, and all this could eventually lead to panic of population and crisis. Hypothetically, many people saving their money could increase savings, but the tendency is that macroeconomic status will fall.

In general, paradox of thrift looks as a vicious circle, but it turns to be right and understandable. Some may argue fading into a fallacy of consumption, stating that what is considered to be good for an individual within the economy will be good for the entire population. Savings are useful for every particular person saving, but it may harm the economy in the whole, making the moment of crisis closer with every dollar kept out of participating in the economy. However, this does not mean that every dollar should be spent - only balanced consuming and saving could together lead to the prosperity.

Paradox of thrift is not widely known, probably, because it seems strange to people denying their intuition’s statements. This paradox is not recognized in classical economy theory, criticized and often it is not taken into account. Though human factor still works in every sphere of people life and science is not an exception: no doubt, frugality is revenue for every one, but not for everybody in general. It, probably, does not really matter which economic theory is the most popular or “correct”. What matters is if people could achieve their goals; and balance could be the way to do it.

Reference

1“Men do not realize how great revenue thrift is” (Latin non intellegunt homines quam magnum vectigal sit parsimonia). Marcus Tullius Cicero

1 “Gross Domestic Product (GDP).” OECD Glossary of Statistical Terms. OECD, 1 July 2002. Web. 10 Jan. 2015.

2 Šťastný, Dan. “Measuring Wealth and Well-being.” University of New York in Prague, Prague. 15 Nov. 2014. Lecture.

3 Vermann, Katarina. "Wait, Is Saving Good or Bad? The Paradox of Thrift." Page One Economics - St. Louis Fed. Economic Research, n.d. Web. 15 Jan. 2015.

4 Krugman, Paul. “When Consumers Capitulate.” The New York Times. The New York Times, 31 Oct. 2008. Web. 10 Jan. 2015.

5 Krugman, Paul. “The Paradox of Thrift - for Real.” The New York Times. The New York Times, 07 July 2009. Web. 10 Jan. 2015.

Government intervention to the economy pursues certain functions. As a rule, it corrects those "imperfections" inherent to the market mechanism. Participation of the state in economic life is dictated by the fact, that the market does not provide socially equitable distribution of income: the state should take care of disabled, poor and elderly; it also holds the sphere of fundamental scientific research and implements antitrust activities. Modern market system is unthinkable without the government control. However, there is a boarder beyond which deformation of market processes and decreasing of efficiency start. Then, sooner or later, the question of privatization of the economy, ridding it from excessive government activity arises.

The idea of government regulation of the economy has existed throughout most of human history. For example, during the reign of the church in all aspects of life, usury was forbidden, but pawnshops appeared whose service used even Popes1. In the XIX century the idea was dominated, that the state should exercise strict control over prices, quality of goods and services, interest rates and foreign trade. Theorists substantiated concept enhancing the leadership role of the state, they saw in state leadership way to achieve social justice. Then gained momentum opposite concept. With the development of market competition, freedom of choice and private property rights, economic role of government was mostly to protect its safety. In the early XX century an increase of the state influence was seen again, but soon his care became mainly about combating monopolies and military-industrial complexes, regulation of the social sphere, support for science and technology2. It could be said, that now the economy teetering trying to find the “sweet spot”.

Denationalization of the economy does not imply, that the state does not assume responsibility for the uncontrolled growth of prices or the development of the shadow markets and should abandon economic planning. But government have to create such an environment what could provide economic liberty. Terry Miller and Anthony Kim in their article “Defining Economic Freedom” describe it the following way: “Economic freedom is the condition in which individuals can act with autonomy wile in the pursuit of their economic livelihood and greater prosperity.”3 Government intervention is necessary only where it is vital. In all other cases, the market could solve the economic problems posed more effectively.

There are important limitations for regulation. For example, any state action, destroying the market mechanism such as total directive planning, should not be allowed. Terry Miller strongly believes, that expanding of government's control over economy cold lead to marginal tax rates exceeding corruption and other economic losses what he highlights in his articles “Big Government and Political Instability Intertwined” and “America's Dwindling Economic Freedom”4. Market is largely self-tuning system, and therefore should be affected only by indirect economic methods, such as controling system of taxation and tax benefits, interest rate for the loan, customs regulation of exports and imports, foreign exchange rates and currency exchange conditions.

Forbes contributor Frances Coppola names the idea that fiscal austerity generates economic growth among “three dangerous economic ideas” which affect both economy and politics but could turn out being wrong. He provides an example of UK finally having structural deficit of unknown dimensions and a relatively high debt/GDP ratio5. It is believed, that government regulation reduce the incentive to innovate, to the entry of new competitors into the industry, as this requires the permission of the commission.

Government intervention in the economy requires a fairly large expenditure. They include both direct costs, such as preparation of legislation and control over their implementation and indirect, such as costs for firms that must fulfill state regulations and reporting. Deregulation implies the elimination of laws that hinder the entry of potential competitors to the market, set prices for certain goods and services. State sector does not give such a powerful incentive to reduce costs and obtain greater profit, as it does private enterprise. If a private company suffers losses for a long time, then it closes. State enterprises are assisted, so they can not strive to improve their profitability. Sale of state-owned enterprises to private individuals or organizations - privatization - aimed at improving the economic rationality. It could be caused by the fact, that state-owned enterprises are unprofitable and inefficient for a long time. Even the privatization offer could increase the company's share6, as is was with Shanda Games. Privatization could be also seen as a solution for country’s issues, for example Italy and Greece try to do so7.

However, in some cases, the use of administrative methods is not only permissible but necessary. That is the state who disgruntled seek help. For instance, in the 1990s, individuals, and government itself, sued tobacco companies over the health risks8. In addition, government provides pension payments, cleaning and lighting for streets, medical insurance and other social services to the population.

The market system does not preclude planning at the enterprise level, regional, and even national economy. Among the methods of state regulation does not exist totally inefficient. They all are needed, and the only question is to determine for which situations its use is the most appropriate. Economic losses begin when the authorities go far beyond reasonable, giving undue preference to either economic or administrative measures.

Reference

1 Trex, Ethan. “They Buy Gold: A Brief History of Pawn Shops.” Mental Floss. N.p., 18 Jan. 2011. Web. May 2014.

2 “Economic Role of Government.” ECONTOOL.COM. N.p., n.d. Web. May 2014.

3 Miller, Terry, and Anthony Kim. “Defining Economic Freedom.” The Heritage Foundation in Partnership with Wall Street Journal. N.p., n.d. Web. May 2014.

4 Miller, Terry. “America's Dwindling Economic Freedom.” The Heritage Foundation. N.p., 13 Jan. 2014. Web. May 2014.

Miller, Terry. “Big Government and Political Instability Intertwined.” The Heritage Foundation. N.p., 22 Aug. 2012. Web. 16 May 2014.

5 Coppola, Frances. “Three Dangerous Economic Ideas.” Forbes. Forbes Magazine, 22 Mar. 2014. Web. May 2014.

6 Flannery, Russell. “Shanda Games Soars 15% After Privatization Offer Values Company At $1.9 Bln.” Forbes. Forbes Magazine, 27 Jan. 2014. Web. May 2014.

7 Coats, Christopher. “Italian Energy On The Auction Block With Privatization Push.” Forbes. Forbes Magazine, 29 Oct. 2013. Web. May 2014.

8 Beggs, Jodi. “Regulation and Control in the U.S. Economy.” About.com Economics. N.p., n.d. Web. May 2014.

— Вот. Слушаешь?

— Угу.

— Каждый выбирает для себя

Женщину, религию, дорогу.

Дьяволу служить или пророку –

Каждый выбирает для себя.

  Каждый выбирает по себе

Шпагу для дуэли, меч для битвы.

Слово для любви и для молитвы

Каждый выбирает по себе.

  Каждый выбирает по себе

Щит и латы, посох и заплаты.

Меру окончательной расплаты

Каждый выбирает по себе.

  Каждый выбирает для себя

Выбираю тоже как умею

Ни к кому претензий не имею

Каждый выбирает для себя

— Моё любимое — прокомментировал Питер от двери.

Арабелла удивлённо посмотрела на него, выглядывая из-за не менее ошарашенного Эшли. Питер запустил руку в волосы и пожал плечами.

— Правда, классное стихотворение. Можно к вам?

Вместо ответа Эшли только указал на кресло. Питер приземлился на него в своей излюбленной манере и откинул с лица отросшую челку, которую только что сам же и спутал.

— Рассказывай — протянул Эшли.

Питер вздёрнул бровь, но решил всё-таки ответить.

— Кажется, мы с Мартой расстались.

— Кажется? — хмыкнула Арабелла.

— Я сказал, что не хочу с ней отношений и ушёл.

Арабелла перестала листать страницы книги и положила её себе на живот. Она внимательно посмотрела на Питера.

— Ты её обидел — сказала она, наконец.

От пронзительного взгляда зелёных глаз, в которых плясали отблески пламени в камине, некуда было спрятаться.

— Вот когда ты так смотришь, то действительно стыдно — девушка хотела было возмутиться, но Питер продолжил — Ладно. Стыдно мне. Но должно же было это когда-то закончиться.

Арабелла поджала губы, но от комментариев воздержалась и легла обратно на колени Эшли снова принимаясь листать книгу.

— А в чём собственно проблема? — Эшли продолжал сверлить Питера пристальным взглядом как будто знал что-то, чего не знал никто.

— Не знаю — Питер устало откинулся на спинку кресла — Но что-то было не так.

Ей нравилось сидеть вот так одной, наслаждаясь тишиной и слабым ветерком, который едва шевелил волосы у её лица. Вдруг, вдали, там, где аллея пересекалась с другой дорожкой, она увидела тёмную фигуру, в нерешительности остановившуюся.  Озираясь, и, по-видимому, ища верный путь, фигура заметила Анжелину и направилась прямиком к ней. Только когда человек подошел на близкое расстояние, Анжелина увидела, что это был высокий, очень красивый молодой человек. Расстроившаяся было из-за того, что её уединение было нарушено, Анжелина, едва взглянув в большие, выразительные карие глаза незнакомца, тут же забыла обо всём. На несколько секунд оба застыли, смотря друг на друга, но потом, молодой человек всё же справился с собой и поздоровался.

 — Добрый вечер.

Анжелина подавила желание блаженно улыбнуться от мягкого звука его голоса.

— Прошу прощения, что вас потревожил. Моё имя – Седрик. Я только что приехал по приглашению Оракула, но, к моему стыду и сожалению, заплутал в саду. Не могли бы вы помочь мне найти дорогу?

Анжелина вынуждена была вернуться к реальности.

— Добрый вечер. Меня зовут Анжелина. Пойдёмте, я покажу дорогу. Сад действительно огромный — она улыбнулась.

Седрик улыбнулся ей в ответ.

— Вы здесь давно?

— Всего пару недель. Я так же здесь по приглашению Оракула.

—  Не хотите поужинать со мной? Заодно расскажете мне о здешних местах.

— С радостью — улыбнулась девушка —  А вот мы и пришли  — они подошли к большим стеклянным дверям, выходящим в сад.

Их уже встречал мужчина, по-видимому прибывший вместе с Седриком. Он вежливо поклонился девушке и повернулся к молодому человеку, словно ожидая чего-то.

— Мы поужинаем вдвоём  —  ответил Седрик на немой вопрос.

Слуга кивнул, повернулся и ушёл по направлению к кухне.

Молодой человек растворил двери и пропустил Анжелину вперед, а потом уверенно направился в сторону одной из малых гостиных.

— Я был здесь однажды — пояснил он немного обескураженной девушке  —  мне тогда было семь. Пути до гостиных я помню, а вот в сад меня тогда не пускали  —  он невесело усмехнулся.

За ужином Анжелина смогла лучше рассмотреть своего нового знакомого – это был высокий молодой мужчина. Его аристократически-бледное лицо обрамляли тёмно-русые волосы. Карие глаза смотрели прямо и уверено, властно, но не подавляя. Рассказывая, кто сейчас живёт в замке и что здесь происходит, Анжелина заметила на руке Седрика крупный узорчатый перстень из трёх видов золота. На крупном сапфире красовалась гравировка – витиеватая буква Р.      Вскоре, оба уже весело и беззаботно смеялись, болтали и шутили, давно перейдя на «ты». Далеко за полночь, вспомнив, что обоим, несмотря на выходной, завтра нужно встать пораньше, они наконец встали из-за стола. Безукоризненно вежливый, Седрик проводил девушку до её комнаты, и, заверив, что найдёт дорогу к себе, пожелав девушке спокойной ночи, удалился размеренным шагом.

Анжелина долго не могла заснуть, вспоминая все подробности этого вечера.