Crisis Paradox: How to Spend When You Need to Save

How to stimulate the economy without draining your account
By Katherine Thompson,  Newser Staff
Posted Feb 11, 2009 12:11 PM CST
Crisis Paradox: How to Spend When You Need to Save
Simple changes, like installing energy-efficient fixtures and shoring up insulation on a home, can stimulate the economy now and offer long-term savings.   (AP Photo/Carolyn Kaster, file)

While leaders encourage Americans to stimulate the economy by spending, those who have lost jobs or investments are a lot more inclined to hoard their remaining assets. But there's a way to avoid this "paradox of thrift," in which the frugal behavior that's best for an individual ends up hurting the economy at large. In the New York Times, David Leonhardt explains:

To serve both ends, the best course of action is the type of spending that ensures long-term savings, like insulating your home against heat loss. Joining Costco can pay off within a few months, and inflating your tires and changing your car's fuel filter could boost your gas mileage. But saving can help a different sector of the economy, Leonhardt writes—"when banks need capital as much as retailers or restaurants need business, people can save without guilt." (More financial crisis stories.)

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