Monday, January 5, 2009

James Surowiecki Adds Support to ABCT

Of late, I have been pounding away at the fact that part of ABCT states that the consumption-savings ratio readjusts during a downturn in favor of consumption. And I have put some focus on the movie industry as an example of a consumption industry doing well during an economic downturn.

The New Yorker's business columnist, James Surowiecki, provides some further supporting commentary that the move industry is boomimg during the downturn, although seemingly unaware that he is supporting ABCT, when he does so:


Back in the fall, as it became clear just how deep this recession was going to be, there was a lot of talk that this time around, the entertainment industry, and in particular Hollywood, wasn’t likely to be as “recession-proof” as it was reputed to be. (Box-office receipts rose in six of the last seven recessions, and the Depression, famously, was the heyday of movie attendance in America.) The reason proffered for Hollywood’s newfound susceptibility to an economic downturn? The Internet, of course. With so many free pieces of entertainment available on the Net, the argument goes, people were much less likely to schlep to the theatre and shell out eleven bucks for a film.

So much for that idea. Box-office receipts over the Christmas/New Year’s period were up almost twenty per cent from a year ago, with a wide range of films—from “Marley and Me” to “Benjamin Button” to even critical bombs like “Seven Pounds”—all doing solid business.


  1. Out of curiosity, can you elaborate further on this theory regarding saving-consumption ratio?

  2. Can you elaborate further on the consumption / savings ratio?

  3. Well, the real short version is that during the boom period, a Central bank distorts the consumption savings ratio by pumping money into the banking system whereby it is then loaned out for the most part to the capital goods sector. Thus distorting the consumption savings ratio in favor of "forced" savings. The downturn, when a central bank stops printing money, results n the money going to workers without new money being loaned to capital goods, thus the workers spend in the old consumption-savings ratio. That is why you don't see real revenues dropping in ultimate consumer goods, such as movies, concert tickets etc.

    I am finishing up a book covering the topic that will be out in the second half of 2009.