Sunday, February 10, 2008
Recession Spending
Fox News ran a video segment on how to recession proof yourself. The segment which aired on Fox and Friends told a national audience to "Slash Spending" by cutting back on spending on food and energy consumption. Did the newscasters commit the Fallacy of Composition? If consumers become pessimistic about the future and refrain from spending, the aggregate demand curve will shift to the left and consumers will induce a recession. I'm not advocating profligate consumption, but to point out the econ 101 disagrees with Fox News.
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Or the $3.1 trillion government spending will make up for the minor gap caused by some consumption cut backs.
ReplyDeleteNice connection to the fallacy of composition. Only a small portion of the lower middle class would take their advice or even benefit from reducing food and energy consumption.
good points...do you think that it would be Pareto efficient just to give 90% of the spending package to the lower 20% of households?
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