Americans are displaying a strange behavior when it comes to their economic well-being. The U.S. economy has been steadily getting better since the Great Recession, with unemployment at record lows and wages finally rising. Meanwhile, the stock market has had an incredible run, hitting one record high after another while the tax cuts passed by Congress last year have injected a large amount of shareholder cash into the economy.
But yet, Americans are still down in the dumps. Consumer confidence is low and confidence in the political process is even worse. This has been reflected in the recent midterm elections which saw a record number of Americans not showing up to the polls, as well as in the spending habits of consumers. Rather than enjoying the increased economic prosperity, many Americans are choosing to save rather than invest.
What exactly is causing this strange behavior? One possibility is the “wealth effect”, which suggests that citizens may feel like they have to save more when the stock market is booming and when wealthier citizens become even wealthier. Another possibility is a lack of trust in the government. After the Great Recession, many citizens were disappointed with the bailout measures that were taken to “rescue” banks and other large corporations. This has led to a lack of faith in the government’s ability to handle future economic crises and this lack of trust may be playing a role in the current behavior of American consumers and voters.
Finally, there could be a psychological element at work. After years of economic hardship due to the Great Recession, the economic recovery has been slow. Some Americans may not have fully adjusted to the improved economic environment and may be holding onto their savings as a result.
No matter what the cause of this unusual behavior is, one thing is certain: the American economy needs the spending habits of consumers and confidence in the government to turn around soon if it is to remain healthy and vibrant. The upcoming presidential election will likely play an important role in deciding the fate of the U.S. economy, and it will be interesting to see whether American citizens will choose to reward the good economic policies of the past or punish the government for its perceived failures.