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Home Kuo’s Smart Take Smart Thought Of The Week: Recession

Smart Thought Of The Week: Recession

John F Kennedy’s said in his 1961 presidential inaugural speech: “Ask not what your country can do for you – ask what you can do for your country.”

At that time, he urged every American to contribute in some way to the public good. Our job today is to try and do our part to revive our economies. Some of us might ask – and rightly so – what mere mortals like us can do that could possibly make a difference.

It’s true. As individuals our contribution is limited. But as a collective, our contributions could be immense. Let’s not forget that together we drive household consumption, which is one of the most powerful levers of economic growth.

Worryingly, many of us are reluctant to spend. And whilst that is understandable, it is also irrational. In a recent commentary on CNA, I pointed out that governments, central banks and even the private sector are limited in the things that they can do to get economies moving again….

…. for sure, interest-rate cuts, Quantitative Easing, fiscal support, travel vouchers, and food coupons will help. But they are not sustainable solutions. Instead, we consumers can move mountains if we try. Consequently, those who are in work can help those who are at risk of losing their jobs simply by spending a little more.

John Maynard Keynes warned about the paradox of thrift. He said that in an economic downturn, people should collectively spend more to avoid a deeper recession. But he also admitted that they, instinctively, tend to do the opposite and instead save more.

We must avoid falling victim to the paradox of thrift.

The upshot is that we all have a role to play in digging ourselves out of this economic slump. It in our hands. But using our hands doesn’t include being an armchair critic, a hand-wringer or a finger-pointer. Instead, it is a time for us to put our hands in our pockets and spend a little more if we can afford to.

A version of this post first appeared in CNA.

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Disclosure: David Kuo does not own shares in any the companies mentioned.

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