Interesting–but not surprising–article this morning regarding the tendency to not spend money in a bad economy even when your income/employment is considered relatively secure.
The frugality of the Kimberlins and Scanlons and millions of other Americans who still have their good jobs feed back on the economy, holding down growth and encouraging other worried workers to trim their spending — causing the whole vicious cycle to run another lap.
Logically, this makes sense; the whole idea behind government (taxpayer) stimulus is to get money circulating, and all good liberals should immediately go out and spend, spend, spend. However, I think that the mob mentality that the article appears to blame for the hoarding is not completely on target.
Economists say many still-flush consumers are handcuffed by psychological traps that cause them to tighten their purse strings even though economic hardship is not their reality. Underscoring the crucial role that consumer psychology will play in turning around the economy, President Obama and Federal Reserve Chairman Ben S. Bernanke have both been on the hustings this week sounding notes of optimism.
“Traditional economics assumes that we are all rational, that we approach these things very rationally, take in all the information, and then weight it and make a decision,” said Thomas Gilovich, a Cornell psychologist and co-director of the university’s Center for Behavioral Economics and Decision Research. “To a behavioral economist that seems clearly untrue.”
While I and many of my friends are not feeling secure, we’ve all started saving for the bad times since last year. We aren’t looking around at what others are doing, we’re attempting to insure our own survival by creating a safety net that’s not based on a government handout as an option. I think that frugality–at least in my own case–is a learned habit, and it’s extended beyond my own personal finances to that of my thoughts on government spending. Some folks don’t see it that way, and this is likely where the follow-the-crowd thinking comes in: If it ain’t my money, spend it; if it is and I’m the only one paying, hold on tight. The problem here is that these folk who are so free with government spending don’t appear to care that as long as everyone else’s money’s being spent along with theirs, it’s okay.
Personally, we’ve put more money into the system, into government via taxes, the insurance companies via premiums, the school systems via tuitions, etc., etc. than we’ve ever drawn out over the years. That feels good.