It is widely accepted that the economy is in poor condition and although some people do not feel the crunch as they did when to economy took a turn for the worse, keeping a tight budget is still on American’s minds.
“Right now, people in the United States are very concerned; they are not making… investments,” said Edward C. Prescott, the economic chair at Arizona State University’s W.P. Carey School of Business.
When individuals and businesses expect the economy is functioning poorly, they avoid spending.
This lack of spending, created by consumers’ uncertainty and fear, is leaving the economy stagnant.
“I wish they [businesses] would… start spending the money and start hiring the people that they have cash on hand to do. That could be all it takes to kick start back into medium growth. Instead of the minimal growth we’ve been in for a few years now,” said Brian Dille, a political science professor at MCC.
Could consumers’ pessimism be slowing the rate of economic growth?
“What people think is going to happen, determines what does happen now,” said Prescott.
Consumers’ expecting the economy to remain in poor condition, may have an effect on the how quickly the economy recovers.
“Believing the economy is bad reinforces the bad economy, but it’s not the only reason there is a bad economy,” said Brian Dille.
For example, Prescott attributes the poor economy to several laws and regulations that have depressed productivity growth.
However, taxes, unemployment rates, Gross Domestic Product; these are not the only aspects important to economics anymore. Psychology is being recognized as a factor in the study of economics.
A psychologist, Daniel Kahneman, won the Nobel Memorial Prize in Economics in 2002.
“This is an emerging field, but it’s a demonstrated fact. There is quite a bit of data on this. Psychology is in fact a huge factor in economic recovery and collapse,” said Dille.