When one person saves, that person’s wealth is increased, meaning that he or she can consume more in the future. But when everyone saves, everyone’s income falls, meaning that everyone must consume less today. Explain this seeming contradiction.

The first part of the statement uses "wealth" as a measure. The second statement uses "income" as a measure.

The seeming contradiction between individual savings increasing an individual's wealth and aggregate savings leading to a decrease in overall income can be understood by considering the interplay of saving and spending in an economy.

When an individual saves, it means that they are setting aside a portion of their income for future consumption rather than spending it immediately. In this case, the individual's wealth is increased because they are accumulating assets or financial resources that can be used for future needs or investment purposes. This allows them to have the potential to consume more in the future.

However, when everyone in an economy saves, it has a different effect on the overall income and consumption patterns. In a simplified sense, an economy relies on the circular flow of income, where one person's spending becomes another person's income. When individuals collectively reduce their spending and increase their saving, it leads to a decrease in the overall amount of money circulating in the economy.

As a result, when there is a decrease in spending, businesses generate less revenue, leading to reduced profits and potentially decreased employment levels. This, in turn, can lower the overall income earned by individuals in the economy, causing a decrease in aggregate income.

Additionally, reduced spending can create a demand deficiency in an economy. When people consume less, businesses may decrease their production levels, leading to a decrease in overall economic output. Lower production levels can result in job losses and wage cuts, further reducing individual incomes.

Hence, the seeming contradiction arises from the fact that on an individual level, saving can increase wealth and future consumption capacity, but when everyone saves, it can lead to a decrease in aggregate income, causing a decrease in present consumption levels for everyone.