This Article illustrates the ripple affect of the multiplier as one individual is laid off in a Texas town.
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2009
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January
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- Economists Debate: Diverse Perspectives on Stimulus
- A Layoff in the Smith Family Ripples Through Town
- House Passes Stimulus Plan Despite G.O.P. Opposition
- Stupidity Has No Bounds: Chrysler Urges Dealers to...
- FBI mortage fraud found early!
- Stuck in the Muddle
- We Can't Spend Our Way out of This Quagmire
- The Fallacy of Composition
- Boon or Doggle?
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January
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This article proves the far-reaching consequences of cyclical unemployment and the dire need for direct, immediate response. When there are less jobs present, less money is made, therefore less money is spent. When the Smith family lost half of its income, the family avoided eating out or shopping at luxury retailers. As a result, the retail and restaurant industries suffer from a downfall in the seemingly unrelated housing consulting firm where Mr. Smith was employed. While the Smiths may substitute their wants with inferior goods at McDonald's or Wal-Mart—w here those companies may see an increase in revenue—less money overall is spent therefore the nation’s gross domestic product will decrease.
ReplyDeleteThe article speaks indirectly to the points I have made in our two class discussions about saving trends and the stimulus package. Saving may provide a safeguard and spur investment, but saving more at this time would be a blow to consumer confidence and only further damage our economy. Saving more would mean less money is spent, in which firms generate less revenue and as a result may be forced to lay-off employees or even worse shut down—which only perpetuates the viscous cycle. While saving may be prudent in an economic boom, such as in 2005 (when the class discussion articles were written), increased spending can rescue us to spur employment and encourage consumers. Unfortunately, the current trend is an increasing savings rate. And while consumer confidence is low, and spending may not seem like the best approach right now, consumers should continue to consume. In order to encourage this, the government needs to step in with swift action as a spender of last resort to stimulate the economy by creating jobs. We have reached the time of “last resort.” The details can be argued indefinitely on where to spend the money, but government must recognize their need to act now to encourage the private sector to once again spend. The Smith family is paragon of the horrible trend on Main Street, which reaches Wall Street. We now beginning to see a reverse causation—instead of Wall Street woes reaching Main Street, it has reversed—that must be stopped. If Main Street shifts away from a consumer driven society, there is no foreseeable emergence from this crisis.