February 8th, 2009
Leave it to the Mojo’s favorite cartoonist, Tom Fishburne, to put his finger on something that’s been giving me a headache: the economic concept known as “the paradox of thrift.”
First posited by John Maynard Keynes, the paradox of thrift (or paradox of saving) states that if everyone saves more money during a recession, then overall demand will fall, which leads to further unemployment and downsizing, decreased consumption and even slower economic growth.
In other words…
So what’s a consumer to do? Is ING Direct the hero, with its We the Savers campaign, or is it “unpatriotic” not to go out and spend? Eventually, the theory says that prices decline due to lower demand and the business community and society reset. Note the “eventually” element, unfortunately.
One note: Keynes advocated an active and interventionalist government, using fiscal and monetary levers to help mitigate the effect of economic cycles. Obama is following this lead, trying to inject additional activity and employment into the system so that demand can stay at some manageable level while all of our other problems are addressed.
As for marketers, there can be no fancy footwork here.
I’ve written several posts on value, the most recent of which is HERE. The only play is to deliver what your customers define as value at the highest acceptable price, which may or may not reflect the cost of continued R&D and long-term planning, and to manage expenses agressively. I was reminded a few nights ago of my first day in Year 1 Corporate Finance at business school. The professor wrote on the board, “Don’t run out of cash.” That seems to be the whole of it.
This is playing out in front of us all. “One foot in front of the other” appears to be good albeit wholly unsatisfactory advice not only for individuals but many companies, as well.
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