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Some friends and I were watching TV and saw all these commercials about the economy, tough times, and economic stimulus packages. It got us talking about why the economy is down, or if it even really is down at all. I thought I’d share our discussion here. Obviously, the economy is driven by consumer spending, which is way down. There are two possibilities as to why this has occurred: they are unable to spend, or they are unwilling to spend.
I highly doubt that most people are unable to spend. Of course, the stock market crash was terrible, but how many people’s lives did that REALLY affect? I don’t know a single person whose entire income is dependent on the stock market. At worst, I could see the crash impacting people’s retirement plans, but I can’t see that influencing regular spending habits.
The crash in the real estate market has obviously impacted some family’s ability to move where they want to live or even the increase in their mortgage payments. To my knowledge, this really has only affected a small percentage of the population who had these bad mortgages.
Then, there are job losses, which I could see how that could impact spending ability. If you take all three of these factors together, I would think that you might have AT MOST 10% of our country’s population. It seems highly improbable that a loss of 10% of the population’s spending ability would create such an incredible impact on total consumer spending.
Thus, we came to the conclusion that consumer spending is down because they are unwilling to spend. People have the money. It’s not like it vanished into thin air. The money had to go somewhere. So why are people unwilling to spend?
Fear. Why people are afraid of spending money, I don’t know. Are people afraid of spending because their retirement fund might go down? I seriously doubt that. I can see how fewer homes selling could impact some spending, but that’s not based on fear.
The only thing I can think of is that people are afraid of their living expenses increasing and/or losing their job. Even that really isn’t logical. Maybe it’s because I actually have a budget and can monitor the increase in my expenses, but they haven’t increased that greatly from year to year.
As for the job market, I know that massive layoffs are terrible, and I don’t mean to belittle the impact it has on the economy. But that sort of thing happens all the time. It just gets more coverage now, because people perceive the economy to be down. Last time I checked, unemployment wasn’t nearly that bad, relative to other periods in history. So why are people afraid of that?
I guess if people thought it through, they probably wouldn’t be so afraid. Fear is almost never logical, I suppose.
I highly doubt that most people are unable to spend. Of course, the stock market crash was terrible, but how many people’s lives did that REALLY affect? I don’t know a single person whose entire income is dependent on the stock market. At worst, I could see the crash impacting people’s retirement plans, but I can’t see that influencing regular spending habits.
The crash in the real estate market has obviously impacted some family’s ability to move where they want to live or even the increase in their mortgage payments. To my knowledge, this really has only affected a small percentage of the population who had these bad mortgages.
Then, there are job losses, which I could see how that could impact spending ability. If you take all three of these factors together, I would think that you might have AT MOST 10% of our country’s population. It seems highly improbable that a loss of 10% of the population’s spending ability would create such an incredible impact on total consumer spending.
Thus, we came to the conclusion that consumer spending is down because they are unwilling to spend. People have the money. It’s not like it vanished into thin air. The money had to go somewhere. So why are people unwilling to spend?
Fear. Why people are afraid of spending money, I don’t know. Are people afraid of spending because their retirement fund might go down? I seriously doubt that. I can see how fewer homes selling could impact some spending, but that’s not based on fear.
The only thing I can think of is that people are afraid of their living expenses increasing and/or losing their job. Even that really isn’t logical. Maybe it’s because I actually have a budget and can monitor the increase in my expenses, but they haven’t increased that greatly from year to year.
As for the job market, I know that massive layoffs are terrible, and I don’t mean to belittle the impact it has on the economy. But that sort of thing happens all the time. It just gets more coverage now, because people perceive the economy to be down. Last time I checked, unemployment wasn’t nearly that bad, relative to other periods in history. So why are people afraid of that?
I guess if people thought it through, they probably wouldn’t be so afraid. Fear is almost never logical, I suppose.
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