Critique: Fear and Uncertainty take a toll on spending

I agree with the majority of the points in this blog. A huge reason that the economy is taking so long to recover is because of the lack of money the people of the country are putting back into our economy. This could be caused by several very valid reasons. The baby boomer generation is the one that has seen the most drastic change in the economy and it is understandable why the number of people who are retiring in their 50's has greatly decreased. With uncertainty in the economy the marginal propensity to save greatly outweighs the marginal propensity to consume. Although the disposable income of households may be greater now than in recent years due to their current savings rate, people are not looking at their disposable income as "safe" to spend.

The main thing holding consumers back from being comfortable with spending money is the uncertainty in the economy. The target being the baby boomer generation once again. There have been many ups and downs in the economy lately that even when things start to look up for a short period of time, there is still a great deal of skepticism amongst households. If there is once area that people will be cautious and conservative it is when dealing with their money. There needs to be a longer period of stability in the economy before we will really start to see the money circulation start to steadily increase. Like stated before, even though the average wealth of households has generally increased in the last 18 months, the spending has not increased. This is another perfect example of basic fear in the economy.

The majority of people obviously lost money in the recession due to various reasons. The losses came from bad investments, losing money because of banks, and lack of knowledge about the recession. It was stated in the blog that the people who actually gained wealth during the recession were more likely to have an increase in their savings rate. They said that they felt the need to save more for emergencies and unexpected expenses. This is technically the opposite of the wealth effect. This is probably because the ones who gained money were able to witness the terrible times that the people who lost a great deal had to experience. This making them more cautious because they simply did not want to have to go through that themselves.