Sunday, December 6, 2009

Are Poor People Good for the Economy?

Warning: This next post may sound a tad bit crazy, especially to you economists.

As I was walking through the streets of Newark after class, I was thinking about the three Rainbow clothing stores within a two block radius near Broad and Market. I was also thinking about the large number of other clothes stores and chicken shacks. These chicken shacks and stores have been open for a very long time. I live in Montclair where a business is blessed to hit the four month line. I hate to say it but Montclair is becoming a ghost town. It's becoming more and more evident how desperate the town is by the sudden fast food -organic burgers or no- and clothing franchises springing up. As I was thinking about all of this I couldn't help but wonder: Do the poor play a vital role in the stability of the economy?

Think about it. If I were a multi-millionaire and I spent a bunch of money on things (ridiculous things at that) my paycheck could single-handedly be responsible for the success of a few stores. I, as a rich person or a well off person contribute a good amount of money to the economy. But wait! I lost my job and I'm broke. I stopped shopping and spending an excessive amount of money on things. As a result, the local boutique shut down because it lost its best customer and couldn't make the rent. I can't hire the landscapers. I can't pay a bunch of money in taxes. I can't pay a huge mortgage. I can't send my kid to private school anymore and I can't pay off my loan. The loss of my micro-economy just made a void in the regular economy.

Now look at a poor or lower class person. There's only me. I'm typically broke so I tend to have very stable spending habits, for the most part. Gotta pay my bills, gotta eat, gotta get the essentials and if I have some extra monies I'ma head to Persuation or Sin City and get me some cute jeans. Oh crap, the economy is going to hell! Well as long as I still have my job, not much is going to change, I'm still broke. Even I were to lose my job there wouldn't be much of a dent.

I think that the lower class is very essential to the stability of the economy. But only if there are poor people in numbers. Look at Newark's businesses, for example, there are about 30,060 people in Newark (according to the Census taken in 2006). It is safe to say not many are upper class but they somehow have enough money to keep all the chicken shacks, news stands, dollar stores, clothes stores and street vendors open for years. If one person loses their job then it's no biggie to the stores because they still have another 29,000 people to buy that pair of pants for $10. If one rich person loses his or her job, it's the equivalent of 10+ poor people losing their jobs, causing businesses to suffer a huge loss. As I said before this theory only works in numbers. If 30,000 were rich and living in the same town then it wouldn't matter much. Unfortunately, it's a rare thing.

So there. That's my theory.

I also have to say that I don't understand why businesses have lost their minds and made things more expensive and are surprised when they can't keep their heads above water. The businesses of Newark got it right when they made "recession specials". Even the Subway off of Raymond Blvd. and Broad jumped on the band wagon. As a recession special, Subway has two dollar ham sandwiches with unlimited toppings. Who needs five dollar foot longs? Only that Subway is doing it. You know why? Because they know that people need to eat and two dollars is a damn good price for a 6" sub. So now everybody and their momma is going to Subway. Subway is going to pay their rent and everybody is going to be happy. All because of two dollar ham sandwiches. Subway won't lose money because the neigboring business people still get their five dollar foot longs and "make it a meals". Personally, I'm not a huge fan of Subway but now I go there just because of the two dollar deal. As I said, I think businesses should take a lesson from how Newark's businesses operate and get with the program.

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