Sure, the extremes are different. But...

The Paradox of Thrift is sometimes portrayed as a test of the extremes: "when one person saves" versus "when everyone saves".

See, for example, Wikipedia:
In Keynesian macroeconomics, the "paradox of thrift" theory illustrates this fallacy: increasing saving (or "thrift") is obviously good for an individual, since it provides for retirement or a "rainy day," but if everyone saves more, Keynesian economists argue that it may cause a recession by reducing consumer demand.

See also Tom Hickey:
If one person saves instead of spending it is thrift, but if everyone saves instead of spending, aggregate demand craters and recession ensues.

See also Soojae Moon's homework:
When one person saves, that person’s wealth is increased, meaning that he or she can consume more in the future. But when everyone saves, everyone’s income falls, meaning that everyone must consume less today.

See also Krugman in Macroeconomics:
When one person saves, that person's wealth is increased, meaning that he or she can consume more in the future. But when everyone saves, everyone's income falls, meaning that everyone must consume less today.

See also Krugman in Essentials of Economics:
When one person saves, that person's wealth is increased, meaning that he or she can consume more in the future. But when everyone saves, everyone's income falls, meaning that everyone must consume less today.

For a lot more of this, see Google.


The Paradox of Thrift is often expressed as "when one person saves" as against "when everyone saves". This is an example of testing at the logical extremes.

Considering extreme cases is a useful technique. With the Paradox of Thrift, it shows different outcomes at the different extremes. But it only shows the outcomes at the periphery. It misses the central conclusion. In the case of the Paradox of Thrift, it shows different outcomes for "one person" and "everyone". It looks away from the fact that there must be a turning-point somewhere between those extremes.

Considering the effect of increased saving for only "one person" and "everyone" is a simplification. There is a vast distance between "one person" and "everyone".

Surely it is not a problem if two people save?

What if there is one person *not* saving?

Perhaps 17 is the magic number??

There is no magic number. Let me restate the Paradox of Thrift: On a sliding scale of "how much is saved" there is a point beyond which increased saving reduces income, which reduces saving. Beyond that point, saving more becomes self-defeating for everyone because it undermines economic growth (as Tyler Durden acknowledged). The outcome is different on the low side of the turning-point than it is on the high side.

Really, the Paradox of Thrift states that there is a tipping point at which there is a change in outcome even though there is no change in behavior. We save a little more, and our wealth increases. We save a little more, and our wealth increases. We save a little more, and our wealth increases. And then suddenly, we save a little more and our wealth declines.


And for the record, in the case of extreme income disparity it may be possible to have only one person saving, who saves so much that it creates the effect that is said to result when everyone saves.


Some people reject the Paradox of Thrift. Okay. For them, lets consider instead the Paradox of Taxes: On a sliding scale of tax rates, there is a point beyond which increased rates reduce tax revenues. Raising tax rates then becomes self-defeating.

The Paradox of Taxes may be familiar to you as the Laffer Curve. The Laffer Curve says that there is a tipping point at which there is a change in outcome even though there is no change in behavior. Tax rates are raised, and revenues increase. Tax rates are raised, and revenues increase. Then suddenly, tax rates are raised, and revenues fall. The Laffer Limit has been reached.


Come to think of it, the Paradox of Thrift works on a Laffer Curve, too.