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Boomerang Households

Dec 2, 2011 • Behavioral Economics, Demand, Supply, and Markets, Economic Thinkers, Households, Macroeconomic Measurement, Thinking Economically • 172 Views    No Comments

The “boomeranger” has returned. A Pew Research Survey found that 13% of all households are composed of parents with adult children who moved away and then returned home. Pew’s respondents say the economy was the reason these “boomerangers” moved back.

Living with your parents after college means saving lots of money. No rent, no bed or bedding, no refrigerator to stock, no mop or vacuum cleaner. You can save until economic prosperity returns.

And therein lies the problem. With college grads buying less, they are constraining the economic recovery that will enable them to start their own households.

The Economic Lesson

Sometimes what is good for the individual is bad for the group, the community, or the country.

  • If there is a fire in a crowded movie theater, one person, alone, can successfully exit. However, if everyone dashes for the door, getting out is much more difficult.
  • If one farmer sells a bountiful crop, his profits rise. But, when all farmers flood the market, they make less money.

Similarly…

Called the Paradox of Thrift by economist John Maynard Keynes (1883-1946), it is financially beneficial for the individual to be frugal but disastrous for the community. If everyone saves, national demand plummets. This researcher disagrees.

An Economic Question: How might opportunity cost explain fewer new households during a recession and more when the economy is booming?

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