Even the lowest information voters should have realized by now that their paychecks have shrunk by 2% … since the Feds didn’t renew the 2% payroll tax holiday.
The big question for the economy as 2013 gets underway is how America will react to their smaller paychecks.
There is not much evidence for just how much Americans will pare back in response to tighter times and a higher tax burden.
Cue the consumer psychologists …
According to the Washington Post
Behavioral economists speak of “loss aversion,” a tendency of people to be much more bummed out when they think they have lost something that belonged to them than if they gain it.
A child might be much more upset to have a cookie taken away from them than they are happy to be given a cookie.
It is possible that as Americans learn of their lower take-home pay … when they open their first paycheck of the year — they will adjust their entire spending plans for the year.
That could make January a rough month for retailers and the economy as a whole.
In a new analysis, Goldman Sachs economists ran a number of different economic models … all reveal a hit to growth of around one percentage point in the first half of the year.
Given that growth has been bouncing around at about 2 percent since the recovery began in 2009, that is a big enough drag to make it feel like another sluggish year.
Said differently, behavioral economists conclude that people react less when they receive something new – such as a tax break … than they do when a tax break is taken away.
That’s called an asymmetrical reaction …
Regardless what it’s called, don’t you wish your paycheck were bigger?
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