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March 2018
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The Myth of Sunny Disposition Economics

(Season 13: Margaritaville, first aired on Comedy Central Mar. 26th 2009)

Last week’s episode of South Park was funny. But the learning moment was a bit off the mark.

The lesson that Kyle “teaches” the community only perpetuates the myth that somehow the primary driver of consumer purchasing habits is “mood” or “feeling.” As though somehow if we could just get everyone in America permanently hopped up on Ecstasy, the mood would change and we’d all feel motivated to spend more.

Just to be clear, it’s a FACT that the key determinant of a consumer’s decision to purchase anything is the amount of money he/she has available to spend. Marketing studies show that “actually having money to spend” ranks even higher than “available in fuchsia” or “optional cup holders” as a consumer behavior indicator.

Even people living on a steady diet of credit cards and home equity credit lines have to push away from the table when their monthly debt service exceeds their monthly income. More simply: If the minimum payment on your credit cards is more than your paycheck, you’re screwed no matter how much “consumer confidence” you have.

Sales Taxes: “They Took Auer Jobs!”
A good example of how the “mood myth” manifests itself can be seen in the response of politicians and the public to the recent sales tax increase in California. Starting April Fool’s Day (no joke), the sales tax in Los Angeles will increase from 8.25% to 9.25%.
The common reaction has been a collective shrug. “Oh well,” I’ve heard people say, “It’s only a penny increase, people won’t even notice.”

When a sales tax increases, it doesn’t matter if people “feel” it. The FACT is that they have less available to spend. Hell, if you don’t believe me, just look at a simple $100 transaction. On March 31st, you can go to the store with a $100 bill in your pocket and walk out with $92.38 worth of crap. On April 1st, that same $100 will buy you $91.53 worth of crap.

For retailers, that’s a 0.9% decrease in revenue. There is no “mood,” “feeling,” or “consumer sentiment” that comes into play. Very simply, the retailer now has less money than before. Even if a “sense of well-being” is our economic goal we’ve failed. No retailer would be happy about a 0.9% decrease in revenue. Why would consumers be happy to have 0.9% less stuff?

Leaving aside all the other economic pain being suffered by retailers, if a retailer currently spends 42% of the store’s revenue on labor & benefits, there will have to be a 2.2% reduction in labor cost in order to maintain the same bottom line income.

Of course the retailer could choose to cut back some other cost instead of labor, but you have to remember the fundamental rule of economics: Unless you’re literally flushing cash down the toilet, one man’s cost is another man’s revenue. You can’t simply cut back costs and not expect it to have an impact somewhere in the economy.

Here’s the math:

Effect of Sales Tax Increase

Effect of Sales Tax Increase

Mortgage Malaise
Now, back to South Park. The current meltdown was not caused by a change in mood. That implies that if everyone just kept “believing” that houses are worth more and more, the boom could have gone on endlessly.

Again, Los Angeles is very instructional. At the height of the bubble, houses had a median selling price of $535,000. Meanwhile, the median household income of home buyers was $48,000. Folks, having a good attitude can’t overcome that differential.

Just for fun, let’s leave interest rates, home mortgage interest tax deductions, insurance, property taxes, and closing fees out of the equation and do the simple math that the median home buyer could have done with even a 4th grade education:

I can afford to spend 35% of my gross income of $48,000 on house payments, that’s $16,800. At that rate, it’s going to take me 32 years to pay for a $535,000 house. Having a “good attitude” doesn’t alter that equation. That’s already 2 years longer than the average mortgage term, and I haven’t even accounted for interest or other variables.

Clearly, buyers in LA at least were getting in over their heads. And although the dollars looked different, the scene was the same across America. It went something like this:

Dude pays all of his bills and fills up his gas tank. Dude’s workplace buddy stops by his cubicle and asks, “Hey, you wanta go to lunch?” Dude looks in his wallet and realizes he just got paid, but after slaving all week for The Man, Dude doesn’t have enough money to buy lunch with his friends.

Suddenly, reality sets in and Dude vows to cut back.

That scene played itself out millions of times with other dudes and dudesses. A back rub and a slap on the ass ain’t gonna put money in your wallet or gas in your tank.

As my people used to say in the old country: A sunny disposition don’t feed the baby.

2 comments to The Myth of Sunny Disposition Economics

  • lianiurbalge

    Hello, need your help.
    How does Brandy compare to both Whiskey and Scotch?

    Thenk you. I am vaiting for answer!!!

    • admin

      I’d love to answer your question but the site does not require age verification and thus I cannot legally promote the use of alcohol.

      I will say however that I keep a bottle of whiskey (and sometimes whisky) in the freezer at all times. I find that freezer temperature liquor keeps the ice from melting and watering down my drink.

      For more information, please see this video of Whisky and Woman from Blues legend B.K. Turner (aka: Black Ace). Thanks.

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