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’.”
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:
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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.
