Salient to Investors:
The poor and the wealthy respond differently to austerity and stimulus. Rich people plan for the future, save during a stimulus, thinking about the taxes to come, and can borrow during a fiscal contraction.
Economists in the 1970s and 1980s erroneously assumed that people were rational and planned for the future.
Christopher Carroll at Johns Hopkins said the marginal propensity to consume is substantially larger for low-wealth than for high-wealth households.
Poor people have more needs than are being met, so when money arrives, they spend it. When the government stops spending and credit is tight, the mythical everyman, like the rich person, continues to spend. But most real people do not have access to credit, and so hunker down.
Read the full article at http://www.businessweek.com/articles/2013-11-07/economists-discover-the-poor-behave-differently-from-the-rich#r=rss
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