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Those government tax refunds, and other stimulus programs don't seem to provide the boost to the economy that government had hoped for. Nor, it turns out, are most Americans spending their paycheck as fast as they arrive. These results were discovered in new research by the University of Michigan and are based on users of a smartphone app that tracks user's spending. For 300 days, the researchers tracked a random sample of about 23,000 anonymous U.S.-based users who received regular payroll or Social Security payments.
They found that individuals shelled out about 70% more than average on the days after a payment arrived. But the bulk of this tended to be monthly bills that were scheduled to occur soon after funds arrived.
So the researchers picked out a single type of spending that's easily influenced by the perception of disposable income: cash shelled out for fast food and coffee. Here, most people's spending barely increased after a paycheck, the team reports online today in Science (paywalled). Obviously, those with lower income tended to spend more of their paycheck than others, and some do in fact spend whatever is available. But by and large, the average user did not increase discretionary spending in response to a bump in income.
The finding suggests that tax rebates and other cash infusions may not boost the economy as some have suggested, as most people would probably save the windfall for a rainy day, and money doesn't necessarily burn a hole in our pockets. The finding could help governments better stimulate the economy. If they could find ways to target tax rebates to people who have little cash in reserve (not to mention pent up demand), the payments might stimulate spending more effectively because these people are more likely to spend it. Harnessing the power of the spendthrift, as it were.
(Score: 2) by khallow on Sunday July 13 2014, @05:43AM
The point here is that one can "break windows", spurring economic activity while simultaneously resulting in a net loss of value to society.
(Score: 0) by Anonymous Coward on Sunday July 13 2014, @06:22AM
Granted, but the distinction is between economic activity for its own sake on the one hand (replacing broken windows) and on the other hand accumulating new capital without the penalties of having to fix broken windows.
In another sense, it's the difference between measuring GDP and measuring net national wealth.
(Score: 2) by khallow on Sunday July 13 2014, @05:40PM
What distinction? You're not going to measure that distinction by only measuring economic activity. This is a large part of the basis for my original question.
(Score: 0) by Anonymous Coward on Sunday July 13 2014, @11:37PM
Ok, your original question was why we consider economic activity so important.
The fact is that, assuming the rate of deterioration of society-wide capital (the rate of windows breaking, if you like) is a given, any increase in economic activity represents a net benefit with respect to the condition without it. You produced more stuff. You did more stuff.
If you're suggesting (which I didn't see in any of your postings - maybe you can help me here) that the rate of deterioration (window breaking) is somehow linked to the rate of economic activity, such that a higher rate of economic activity might not actually be a net benefit, then assuming you can actually back that up with some real information I'm bound to agree that economic activity is not a useful measure in isolation.
However, I am unaware of any measure other than economic activity which measures .... economic activity. Since we care about rates of production, this matters.
(Score: 2) by khallow on Monday July 14 2014, @05:39AM
It's not. The assumption is unwarranted. That's what I've been saying all along and why I'm concerned about the emphasis on economic activity. I think the problem here is that people and societies are currently making a lot of real world decisions that increase economic activity at the expense of deterioration of society-wide capital. The emphasis on economic activity in the story is a symptom of this.