There seems to be some confusion about what this is. Wikipedia knows what’s up:
The paradox of thrift (or paradox of saving) is a paradox of economics, popularized by John Maynard Keynes, though it had been stated as early as 1714 in The Fable of the Bees, and similar sentiments date to antiquity. The paradox states that if everyone tries to save more money during times of economic recession, then aggregate demand will fall and will in turn lower total savings in the population because of the decrease in consumption and economic growth. The paradox is, narrowly speaking, that total savings may fall even when individual savings attempt to rise, and, broadly speaking, that increase in savings may be harmful to an economy. Both the narrow and broad claims are paradoxical within the assumption underlying the fallacy of composition, namely that what is true of the parts must be true of the whole. The narrow claim transparently contradicts this assumption, and the broad one does so by implication, because while individual thrift is generally averred to be good for the economy, the paradox of thrift holds that collective thrift may be bad for the economy.
Exactly. Very straightforward. Whether or not you agree with it, that’s what the “paradox of thrift” is. It’s about saving–”thrift”–and it’s paradoxical, because when the community tries to save more, they end up saving less. Hence, “the paradox of thrift.” Very neat and tidy.
In contrast, if someone says “the paradox of thrift” is “really about” a mismatch of saving and investment, and that if the community suddenly decided to invest less, that this too would be “the paradox of thrift”…well no, that not only is wrong, but it would make no sense at all.
If you open any textbook that has the actual phrase “paradox of thrift” in it, I am quite sure it will define it along the above lines. If someone can show me a textbook saying that a community deciding to invest less–where that is the starting point of the analysis–is an example of the paradox of thrift, I will PayPal the first such person $25. And I will take it out of my investment spending.