The "Dusenberry Effect" In The U.S. Economy

Via Global Macro Monitor,

Just saw this chart on Zero Hedge yesterday, which takes me back to the days of graduate school and an unfinished Ph.D. dissertation.

One part of the “Dusenberry Effect” basically states that consumers do not give up their consumption patterns very easy even if their incomes decline.

They, in effect, “ratchet” down their living standard very slowly by first having a second wage earner enter the workforce as we saw in the 1970’s when women began to enter the workforce en masse and then by taking on debt to finance their previous standard of living.

…[a] significant part of Duesenberry’s relative income hypothesis is that it suggests that when income of individuals or households falls, their consumption expenditure does not fall much. This is often called a ratchet effect. This is because, according to Duesenberry, the people try to maintain their consumption at the highest level attained earlier. This is partly due to the demon­stration effect explained above. People do not want to show to their neighbours that they no longer afford to maintain their high standard of living.

Further, this is also partly due to the fact that they become accustomed to their previous higher level of consumption and it is quite hard and difficult to reduce their consumption expenditure when their income has fallen. They maintain their earlier con­sumption level by reducing their savings. Therefore, the fall in their income, as during the period of recession or depression, does not result in decrease in consumption expenditure very much as one would conclude from family budget studies.

– YourArticleLibrary

We suspect the cumulative policy decisions of bailing out debt holders and punishing savers over the past 30 years has changed attitudes on debt accumulaton.  

We know several people that didn’t pay their mortgages for more than three years and were not foreclosed on.   That is just un-freaking-fair, folks!

The Rise of Tea Party

The duplicity of the policy makers and the banks gave rise to much anger thoughout the country from those who basically, “did the right thing”,  paying their bills and mortgages on time. And was one reason for Rick Santelli’s rant in February 2009, which many atrribute to the birth of the Tea Party.

Upshot?  No wonder the country is so divided.

11 Arrested In Sweden As Migrants Riot, Hurl Rocks At Police

As the European Union continues to threaten member states with fines for "falling short" of fulfilling their duties to help international refugees (see "EU Threatens Member States With Fines Over Failure To Accept Refugees"), the daily reminders of why a wave of nationalism is sweeping over Europe in defiance of Merkel"s open border policies continue to mount.

The latest example comes from Hallsberg, Sweden where police were called in to stop a brawl at the Alléskolan school that erupted between some 30 people and ultimately resulted in 11 migrants being arrested as they hurled stones at police.  Per RT: 

A total of 30 people took part in the brawl, which occurred on Monday, Sveriges Radio reported, citing police. They were all wearing hoods and threw stones at the officers, who were called to the scene of the Alléskolan school after reports of a disturbance.

"We have sent a number of police patrols there, and I believe we have dispelled the large gang into smaller groups. [The rioters] disguised themselves, armed themselves with stones they threw at the police. It has been described as a riot-like situation,” the news outlet said, citing Hallsberg Police spokesman Stefan Dangardt.

Meanwhile, local media in Hallsberg reported that the brawl was the result of a dispute between two immigrant groups that are new to the area and most of whom are not even students at the school. 

According to police and school authorities, most of the rioters were not pupils of the school.

“There are many speculations and rumors, but what we know is that most of those who came here last Friday do not belong to the school. They are not the school’s pupils, nor are those who were here [on Monday],” Marie Kilk, director of education at Alléskolan, said.

Media reports claim the rioters were migrants. Swedish SVT reported that the brawl initially broke out between two different immigrant groups, who then started attacking police after they arrived at the scene, as well as reporters from SVT.

“Something must have happened on Friday that became the basis for what was going on [on Monday],” Dangardt told the press.

Fria Tider news outlet also reported that the rioters were migrants, citing 54-year-old Hallsberg resident Claes Marten, who was an eyewitness to Monday’s brawl.

“What lies behind the incident is a brawl between different immigrant groups that have emerged here in Hallsberg. They came [to Hallsberg] relatively recently. Some of them go to Alléskolan school,” he told the press.

“Normally, nothing happens in Hallsberg, it is a very quiet community. We are not accustomed to this kind of problem, this is all new to us. Sweden is about to be rented, it is a very sad development,” he said.

If you don"t like your open borders...too bad, you have to keep your open borders.