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.
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?
Which state postponed a pension fund payment of $3.1 billion because of big budget problems and had a 2.4% decrease in its real GDP? (Still though, this state has the second highest median income.)
The answer? New Jersey.
New Jersey, though, is not alone. Jon Stewart told us that Arizona had to sell its statehouse (which included the governor’s office). A potential California default was the prototype for an Economist simulation. Illinois borrowed money to fund its pension obligations and then had to borrow money to repay the original loan.
According to a Pew study on state financial problems, “Most Americans (58%) say the states should fix their own budget problems by raising taxes or cutting services.” But, “…large majorities oppose…” cutting major spending categories which include education, pubic safety (police and fire), and health care.
Perhaps the reason for the contradiction is opportunity cost. The individual opportunity cost of cuts is far different from the statewide cost.
The Economic Lesson
Looking at a BEA map of state economic growth during 2009 provides a snapshot of state health. Oklahoma is at the top (+6.6%) and Nevada, the bottom (-6.4%). For the GDP of individual states, agriculture, forestry, fishing, hunting, and mining fueled growth. On the minus side, less durable goods production (goods lasting longer than 3 years) and construction diminished economic activity.
Composed of gross investment (primarily business purchases and residential housing), consumer spending, government spending, and exports minus imports, the GDP is a yardstick of the value of goods and services production.
If you want to know whether money relates to happiness, you might first decide what makes you happy. A Gallup World Poll of 136,000 people in 132 countries from 2005-2006 focused on 2 variables: “life satisfaction” and “enjoyment of life.” Those people who use how much money they have earned as a “scoreboard,” profess to greater life satisfaction because of higher earnings. By contrast, happiness on the “enjoyment of life” scale, which included laughter, friends, and meaningful family connections did not relate to money.
This Gallup Poll is one of many happiness studies we have posted during the past several years. In one previous post, high income people experienced more happiness than low income individuals. We can, though, qualify the high income earners’ happiness with a study that concluded income increases had no impact on happiness. Qualifying it further, we also found a study that contradicts the first one. Then, yet another study asserts that lower quintile earners are happy when upward mobility is feasible. Also, however, a different study demonstrated that happiness comes from earning more than your “neighbor”. Consequently, people preferred lower earnings over higher earnings when the lower number exceeded an associate’s income. Finally, researchers concluded that overworked women, more recently, have become less happy than men.
The Economic Lesson
Thinking economically typically requires looking at the margin. The margin is that imaginary line where we find something extra. For example, marginal revenue is extra money that a business receives for each additional sale. When a business sells a computer, the price of the computer becomes its marginal revenue. For happiness studies, we are at the margin, asking if extra money (at the margin) means extra happiness (at the margin).
Posted by: adminEcon
Tags: Gallop, happiness, income, margin, Pew