Summary
This article is based on the fact that even though people are saving money, at the same time, they are also getting poorer. The reason is due to the sudden urge to spend less, as a result, the U.S and global economies is heading downwards. During the last recession, in 2001, a solution was given by President Bush that urged the American people to get out and shop. As a result, the recession was mild. The saving rate fell below 1% and stayed there from 2005 through 2007. Retailers and economists still consider the case that more consumer spending would be a really great thing but the nation's political leaders have concluded that it's too soon to issue calls for more shopping.
Connection
The connection between this article and chapter 6 is Keynesian economic theory and the paradox of thrift. Worried about the economy and their future, tons of people started to save money instead of spending it. As a result businesses pay out less money. With a reduced level of income, people will not be able to save as much and as a result saving would be reduced. This is an example of the paradox of thrift. People increase their level of saving incase of being laid off but this only worsens the economy which ironically increases the chance of people getting laid off. The Keynesian economic theory states that if the demand is not sufficient to provide everyone with a job. It is the responsibility of the government to provide the necessary spending. With the aggregate demand for goods going down due to expectations of being laid off, money is being taken out of the economy. To get the money back into the economy, government spending should increase so that consumer spending would get better. Another plan would be to urge people to spend money, like in 2001.
Comment
I believe that with our current economic state people should be spending more money instead of saving it because if government spending or consumer spending were to increase, more money would be circulating around. The increase of demand would lower the unemployment rate which will lift the disincentive to spend money. Blankenhorn, founder and president of the Institute for American Values, states that "If the moral of today's crisis is 'Let's stimulate this and bail out that, and as soon as things get back to normal, we can go back to a debt culture,' that's just not a sustainable idea." I agree with him on the fact that it isn’t a sustainable idea and that we need to change how we behave.
Link:http://www.time.com/time/magazine/article/0,9171,1879195,00.html
1 comment:
I agree with you on the fact that people should start spending. The more a person spends the more money that can be invested in the country. Also, you bring up a good point about the fact that it is not sustainable. For example, people wouldn't starve for three days and eat after that until they are full. We should start spending now and continue to spend to make things balance. It is better to leave things constant, rather than let it fluctuate. What I mean by this is you would rather have people continue doing something like shop, rather than having them start and stop continuously. Overall, stalling and having people to save up is not going to help the country. Banks are playing their parts in lowering interest rates so people would shop, so why not take advantage of this and spend more to try and improve the environment?
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