| None the less, why is pay down immediately bad? Because, you know, people start to suffer, can't afford to make rent or mortgage payments, take their kids out to the movies, etc. Stuff like that. Which I know may seem kind abstract, from where you sit. So I'll point out a second major factor: As (middle class) incomes decline, do does purchasing power (in areas of the economy that really matter). And with it, the (meaningful) parts of the economy slow down greatly as well. Note that I emphasized the "middle class" part. Yes, we know that as wages go down, the money doesn't really disappear, and is still active in other parts of the economy... namely, in the bank accounts of richer people. But by and large, richer folks tend to allocate their money towards "dumber" or less meaningful parts of the economy, dollar for dollar, while folks in the middle and lower-tiers tend to put their dollars into more fundamental sectors. Which is why when their incomes go down, everyone suffers. It's just how things work, when you start to consider the whole system. And part of the bedrock of modern economic theory -- and one of the root causes of this thing known as The Great Depression, way back when. It's only bad if it is down and things cost the same. Shouldn't purchasing power be the relevant metric? When wages go down, it's not like boom, prices come down to meet them, not at the same pace anyways. (And if we're talking about a sudden wage hit to a certain class of workers -- basically you can't count on any commensurate price decrease at all to come to their rescue). But more generally -- any analysis which only looks as one or two "metrics" -- and neglects to consider the effects on the system as a whole -- is fundamentally flawed. |