Going to the Mall, the Movies (& McDonald’s)

With Black Friday (and Cyber Monday) rapidly approaching, much attention is now focused on how robust consumer spending will be.

The premise is that holiday shopping reflects consumers’ moods (and pocketbooks) — and therefore is an accurate gauge (if not harbinger) of the economy’s strength.

But what if that premise is wrong?

What if holiday shoppping and the economy are inversely related, i.e., consumers are most likely to splurge on holiday shopping when times are bad?

Such a scenario is hardly farfetched:  the tougher a year people are having, the more inclined they may be to divert themselves with (relatively) inexpensive holiday gifts.

“Inferior Goods” and Cheap Pick-Me-Up’s

Leave it to economics (“the dismal science”) to coin a term for precisely this phenomenon:  “inferior goods.”

The classic example is potatoes:  when people’s income is squeezed, they consume more, not less potatoes and other cheap starches.

(Today, I might substitute “going to McDonald’s” for “eating more potatoes”).

Example #2 (and perhaps a better parallel for today):

Going to the movies — and consuming entertainment generally (again, today add “Call of Duty Black Opp’s II”).

In fact, during the Depression, people went to the movies more, not less.

I suppose the difference between potatoes and movies (and holiday gifts!) is that the latter actually have the capacity to improve people’s outlook — and presumably, their propensity to spend.

As Martha Stewart would hasten to add, “and that’s a good thing.”

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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