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Is Confidence All the Economy Needs?

There is a psychological aspect of the economy that is often passed over for more easily measured statistics. Consumer confidence is as important to the economy as the unemployment rate and inflation. Consumer confidence can serve as a catalyst to fuel spending which will in turn begin to the fuel the economy through a positive feedback cycle.

The principal is essentially the inverse of the paradox of thrift. If consumers believe that the economy is strong and growing, they will be more open to discretionary spending and this increase then fuels a real expansion in the economy. The current president elect may be the positive and optimistic attitude needed to kick start the American economy from a slow growth phase to a stronger growth phase.


For all intents and purposes the U.S. economy is relatively strong. Unemployment is low and GDP is strong, however there is still a concern over our growth prospects. It feels as if we are stuck in a sort of economic rut where slow growth means low inflation and low interest rates. A boost to consumer confidence through a flamboyantly optimistic president could generate the jump in spending that healthily pushes up inflation, pulling our economy out of a slow growth rut.

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