Monday, January 30, 2012
Wages go up, Spending Stays Down
It appears as though consumers are still a bit tentative when it comes to spending in this economic climate. According to the Wall Street Journal spending was a bit down from it's usual December figures despite wages rising. This goes against basic economic principles as usually an iincrease in wages will lead to consumers purchasing more products or more expenisive products. It also goes against tradition as December usually sees increased spending due to the holidays. The economic oddity is likely due to a lack of consumer confidence. However as the Wall Street Journal stated, this is a double edge sword because while consumers may need to spend less due to their low savings; economic growth won't occur until there's more spending. I believe that as people wages rise, they should spend more in accordance with how much more money they're earning. Thus they would be obeying basic economic laws while also contributing to economic growth.
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You have pointed out a conundrum of macroeconomics. If wages decline, then consumers have less money to spend. On the other hand, low wages lead to low costs of production. This leads to low prices for goods and services. The low prices can lead to increased sales. What the macroeconomy needs is increased production rather than increased inflation.
ReplyDeleteThis is very similar to what I blogged about also; very coincidental as we are roommates (should have seen what everyone had already blogged about). I agree with Taylor that wages will increase and that they will spend more. This should push the demand curve out at a point of equilibrium that will help to grow the economy.
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