business news in context, analysis with attitude

Interesting piece in the Wall Street Journal this morning saying that smarter decisions by consumers could actually be bad news for retailers and the nation’s economy.

The argument is that a new thriftiness being embraced by many American families, is “a major reason the downturn may not soon end. Americans, fresh off a decades-long buying spree, are finally saving more and spending less -- just as the economy needs their dollars the most.

“Usually, frugality is good for individuals and for the economy. Savings serve as a reservoir of capital that can be used to finance investment, which helps raise a nation's standard of living. But in a recession, increased saving -- or its flip side, decreased spending -- can exacerbate the economy's woes. It's what economists call the ‘paradox of thrift’.”
KC's View:
This reasoning – which seems entirely reasonable – is part of a broader shift in thinking that seems to be taking hold around the US. A Washington Post column over the weekend suggested that we all need to stop thinking of ourselves as “consumers,” that it creates an unhealthy mindset.

It also creates a harder environment for retailers to thrive in.