The Paradox of Thrift from the Invisible Hand podcast series features a clear economic principle. Everyone has the freedom of choice in the market and this control over their own economic prosperity. According to this principle, individuals make voluntary decisions based on their best judgement of opportunities in the marketplace. This freedom of choice will then collectively affect the market in a natural process. As a result, individuals usually make rational decisions based on self-interest which will promote entrepreneurial activity, economic growth, individual wealth, and ultimately the common good. However, the problem is that if you test this economic principle with the paradox of thrift, the result is actually the destruction of the market. When the economy is facing bad times and jobs are scarce, it is individuals’ instinct partnered with animal spirits that gathers fear and shakes confidence; thus, consumers and producers will cut back on spending and investments. From one perspective, it may seem to be the most rational and humble decision to make during an economic downturn, especially when everyone has the freedom of choice in the market according to the principle featured in this episode. …show more content…
Sweeney explains that people would babysit for other people’s children, and in return the babysitter was paid two pieces of scrip per hour which was the currency of the co-op. Everyone had the freedom to choose to babysit or not. However, the key reason for why this all failed ties back to the freedom of choice principle and the paradox of thrift. Everyone was willing to babysit and wanted to save their scrip for a time when it was necessary, so collectively this resulted in a lack of aggregate demand. Therefore, the babysitting co-op suffered from the paradox of