The issue of deficit and debt is a fundamental aspect of the modern day economy. Governments have constantly provided varied opinions about the implementation of various measures to curb debts and deficits. Having enormous debt is means of enslaving and burdening the future generation, which leads to the suggestion that people should save more and pay debts.
Mcculley, however, is of the idea that individual saving is preferable to national or collective saving. This is because saving at the national level kills income hurting the economy in the long run. Paul Mcculley, an economist, and CEO of Pimco attributes this trend to a phenomenon known as the paradox of thrift, which pre-empts that saving more implies less spending, which consequently means less purchase of goods and services lowering the gross domestic product. Mcculley further opposes the idea of saving more and paying all debts by positing a phenomenon known as the paradox of deleveraging. Based on the deleveraging paradox, paying debts and saving more also implies less spending and less purchases.
Considering that Capitalism runs on sales, it is imperative to advocate and advise people to spend as this will not only create income, but will also increase sales, as well as jobs. This implies that various measures taken by governments to create jobs such as provisions incentives to attract potential investors and tax reductions will not create jobs if there are no sales. An economy will only realize an increase in its GDP is it encourages spending on the newly produced goods.
Within any economy, the key to maintain a sustainable GDP is by leveraging the leakages and the inputs. The leakages include savings, taxes and imports that drain away money from the GDP. On the other hand, inputs in the GDP include business investment in the economy, government spending and increasing exports.
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