Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Wednesday, July 27, 2005

Consumerism: A Set of Confessions and a Quiz

I know I am an unabashed consumer. I am grateful for the university pension plan, which pretty much induced me to save for my retirement; otherwise we'd be lucky to have a single-wide mobile home to live in when I retire.

One thing that limits how much stuff I buy (in addition to my paltry income) is the size of our house; after all, I could buy lots of stuff from Good Will if I really wanted to and had the space.

Here is the quiz [my answers are in brackets]:
  1. How many books have you bought but not read (yet)? [I have about 7 or 8 that I'm planning to read "really soon now"; plus there are another 20-30 that I realistically know I'll never get to.]
  2. How many unopened CDs do you have? [6]
  3. How many times have you bought a book or CD, only to discover you already own it? [or does this happen only with those of us approaching "senior" status? 5 or 6 or maybe more times.] This often happens to me when I peruse the clearance bins and just cannot pass up what appears to be a great bargain.
  4. How many unopened DVDs do you have? [We're down to only two now; we maintained an inventory "just in case", and my youngest granddaughter, Laura Bush Palmer, has been working her way through it.]
  5. How many tools or appliances have you bought in case you might "need" them and not used yet? [maybe 1, but I can't think of any]

Do you think this type of behaviour is a rational maximizing reaction to low interest rates? Quite possibly, David Altig would:

To put it short: I find it hard to reconcile the "conundrum" of low market interest rates with an explanation of large current account deficits and net borrowing from foreigners that hinges primarily on an exogenous increase in desired consumption spending by U.S. households (which is how I am, perhaps incorrectly, interpreting the phrase "consumption binge").

What I don't find hard to reconcile is a story that is fundamentally about low saving rates being driven in large part by low interest rates, which themselves are a result of some third (or fourth or fifth) source.

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