Keynes called this the paradox of thrift saving slows down recovery.

In short, the eurozone's periphery is now subject to the paradox of thrift increasing savings too much, too fast leads to renewed recession and makes debts even more unsustainable. And that paradox is now affecting even the core.

It has often been claimed that capitalism rewards the qualities of self restraint, hard work, inventiveness, thrift, and prudence. On the other hand, it crowds out virtues that have no economic utility, like heroism, honor, generosity, and pity.

The fickleness of capital markets poses once again the paradox of thrift. As capital withdraws from emerging markets, these countries soon will be forced to adopt their own austerity measures and run current account surpluses, much like the eurozone periphery today.

Some blame a global savings glut for this state of affairs, and call for less thrift. But if we were at full employment, we would recognize that the world still has mammoth growth opportunities, and to sacrifice future growth for current well being is a second best choice.

The problem is not just the moral inadequacy of the economic virtues, but their disappearance. Hard work and inventiveness are still rewarded, but self restraint, thrift, and prudence surely started to vanish with the first credit card. In the affluent West, everyone borrows to consume as much as possible.

They are useful for making the straightforward but counterintuitive points that distinguish macroeconomics from other fields of economic analysis. We rely on such models to explain, for example the paradox of thrift, whereby individual decisions to increase saving can, by depressing spending and output, result in the population as a whole saving less.

Cleaning up high private sector debt and lowering public debt ratios by growth alone is particularly hard if a balance sheet crisis leads to an anemic recovery. And reducing debt ratios by saving more leads to the paradox of thrift too fast an increase in savings deepens the recession and makes debt ratios even worse.

The notion of Asian values, promoted mostly by Singaporean official scribes, was partly a critique of universalist Western claims. Asians, according to this theory, have their own values, which include thrift, deference to authority, the sacrifice of individual to collective interests, and the belief that countries should not stick their noses into others affairs.

Indeed, the plethora of separate banking regulators had created opportunities for banks to arbitrage the system in search of a more indulgent approach to capital. Likewise, the lack of a federal insurance regulator had left AIG regulated by the Office of Thrift Supervision (OTS) and the New York State Insurance Department, which proved to be a wholly inadequate arrangement.

The persistent tendency to pay lip service to social sustainability, while implementing economic programs focused on unrelenting austerity, is a leading cause of political instability in Europe. Though reform programs aimed at building viable macroeconomic frameworks remain essential, they must include strong provisions for countercyclical policies to offset the paradox of thrift (the tendency to save more during a recession, undermining economic growth).

The general case of this fallacy is the fallacy of composition what makes sense for each household or company individually does not necessarily add up to the good of the whole. The particular case that John Maynard Keynes identified was the paradox of thrift if everyone tries to save more in bad times, aggregate demand will fall, lowering total savings, because of the decrease in consumption and economic growth.