An economist offered an explanation for a paradox that has emerged in recent data showing that spending has remained robust even as consumers report feeling pessimistic.
Joanne Hsu, who is the director of the University of Michigan’s consumer sentiment survey, told CNBC on Friday that she thinks Americans have abandoned plans to save money as they see their financial goals look less attainable and are spending money instead.
“This positive spending is not a reflection of some sort of internalized secret sense of confidence that consumers have,” he explained. “And instead my interpretation is that consumers see that a lot of aspirational goals that we talk about as part of the American Dream—homeownership, paying for college, paying for college for your kids, having a comfortable retirement—with high prices and high interest rates right now, those aspirational goals just feel increasingly out of reach.”
Yeah, anyone surprised by this just doesn’t know what poverty does to someone.
https://phys.org/news/2012-11-poverty-people-focus-short-term.html
We’re reacting exactly as we’re supposed to.
If you don’t know where tomorrows lunch is coming from, how are you going to save for rent?
If you don’t know where this rent is coming from, how are you going to save for a mortgage down payment?
When Maslow’s basic needs aren’t met, that’s what we devote all our attention to. Even in the brief periods where resources are in surplus, our monkey brains say we have to use all those resources ASAP while we still have them.
It’s not people saying “yolo” and intentionally blowing their money, it’s evolution being geared to survival in the present rather than the next decade. These people are acting rationally, it’s just on a very very small timescale.
It’s why the best way to incentive the economy is give poor people money. They’ll keep spending it immediately until their basic needs are met, then for a little longer, then finally they can break out of the poverty mindset and plan long term. Which is what’s best for the economy long term.
But if the wealthy keep them poor and distracted with day to day survival, they’ll never be able to plan far enough ahead to challenge the current system to benefit the wealthy.
Who’s going to “just give poor people money”? The monkey brain also applies to the people in power. Change will only happen if you can convince those in power that it is in their own self-interest to invest in the poor.