http://www.consumerenergyreport.com/2009/02/21/survey-recession-causing-fewer-people-to-go-green/
Summary:
The article I read about is from the Consumer Energy Report about the relationship between consumer's buying habits as the world enters a recession. In America, a survey reflects that the average American is increasingly losing the tendency to spend due to their recessing economy. Americans are less interested in going ‘green’ during these uncertain financial times. Hence their tendency to save has increased. Even the gala celebration of the Oscars are reported to scale back on costs and seek alternatives that are less expensive. Moreover due to economic hardship, shoppers are struggling to provide for the family. The tendency to buy enviromental friendly products has escaped consumer's mind for the price is a burden to their income during this time. Today’s shopper is looking for value,” noted Marcia Mogelonsky. “Value doesn’t mean just low prices, but health and safety benefits, quality, convenience, appeal and trust, all at a reasonable cost. Though their is still opportunities for the green market over the next few years, the recession is expected to affect sales this year greatly.
Connection:
I believe the connection of this article to our text is disposable income and consumers tendency to save during this time of recession. Currently, the world economy is not at equilibrium GDP. Because of the recession, it is human nature for people to save money to protect themselves. Hence, because more people are saving, the amount of investment in the economy will decline resulting in a decrease in the GDP. Due to the recession, disposable income for the average worker will also decrease. Because the tendency to spend is declining, it will cause the aggregate demand for goods and services to decline as well. Consumers are concerned with their well being and are more likely to save. This creates a chain reaction of lay-offs and joblesses for people because as the demand for goods decreases, their is no longer a need to maintain a great level of production. Hence, it is natural for companies to to lay-off workers to reduce cost. Yet, such actions creates a paradox of thrift. As more people save, the circular flow of money in the economy declines causing the total income earned by the people to decrease. Wages drop and there is less disposal income so they end up saving even less through the tendency to save more.
Relfection:
I believe that even though the only way to save the economy is through reviving the circular flow of money, the people are not at fault for saving. It is human nature to protect oneself before others and people believe that through saving, they have more disposable income for the future ahead. The ones that are truly at fault are those who lent out the sub prime loans which crippled the economy. Had the American banks not become consumed by greed, the recession might have been prevented. Moreover, I believe that policy of dissaving is like living on the edge. Because Americans spend more then their disposable income, the money must come from borrowing or accumulative saving. Yet, when the time comes where they cannot pay back the money, it cripples the economy as we see now. People believe that because of the recession, the recessionary gap has furthered increase from a full-employment level of GDP. Yet others believe that this recession can push the economy to a new era in which things are given a fresh start to compensate for the mistakes of the past. I hope that this optimistic view will help people move on to a better future.
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2 comments:
The current recession is a product of many factors. The paradox of thrift has been one of the main components contributing to the recession. So in order to beat the recession all the government has to do is promote spending. This is easier said than done.
Governments have been trying to increase aggregate demands for the past eight months or so. But as humans, we have just continued to adamantly build up on our bank accounts. America gave us the opportunity to start a recession with their sub prime loans and we gladly pounced upon it. Now that we are losing our jobs, we start complaining and even then, we are still saving! We are afraid that even if we start consuming, there will be still others who will continue to save. America isn't the only country that has been affected by this trend. While it is advisable to remain optimistic, the end of the recession is still out of sight.
I agree that to get our economy back on track, producers and consumers have to revive the circular flow of money. However, this will be a hard thing to achieve; during this recession, people are uncertain towards spending their money because consumer confidence is low. Because they are unsure about spending, a safer option for consumers to maintain their income is to save. This contradicts the paradox of thrift, however, as it actually disrupts the economy. I think instead of lowering interest rates like some banks are doing to attract consumers, a better and more substantial way to stimulate spending is to restore consumer confidence. Only this way will people start to become more confident and desire to spend. When consumer spending gets on track, our recessive economy will do so, too.
K.Ip
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