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Stagflation: Bitter Medicine Good for Environment

Posted July 23, 2008

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In July, under the lash of shrinking buying power caused by stagflation, Americans cut spending for gasoline, new cars, and other products. By reducing spending, they do what the “green movement” advocates need to be done to slow global climate change and protect the environment.

The grip of stagflation tightens in July. The Consumer Balance Index (CBI), which tracks consumers’ ability to sustain current spending, drops two points from 80 in June to 78 in July – the lowest reading since November 2007, when consumers first sensed and reacted to the current economic troubles. No end is in view. (Source: LJS telephone surveys of 480 consumers sampled freshly each month.)

DISCUSSION OF THE RELATION BETWEEN THE CONSUMER BALANCE INDEX AND ATTITUDES TOWARD GLOBAL CLIMATE CHANGE

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The monthly Consumer Balance Index (CBI) is compiled on the basis of consumer responses to survey questions about their household finances.

Consumers are able to report on the status of their finances whenever asked, since they continuously track the balance between their assets plus income and their debts plus spending in an effort to keep their finances in good health.

When consumers sense their finances are shifting out of balance, they act aggressively and immediately to correct the imbalance. Having been moved by stagflation-induced constraints on spending to curtail use of gasoline, autos and other resources that are said to place a burden on the environment, Americans rationalize their actions.

In line with the saying “first act then believe,” consumers whose spending is most severely constrained by stagflation are more likely than consumers whose spending is less severely constrained to believe human activity causes global climate change.

The June/July survey of 960 consumers finds 38% of the population strongly believes that humans cause climate change, while 23% adamantly reject the idea that the global climate is changing. Believers have a CBI of 76 – 13 points lower than the 89 CBI of Rejecters, which puts them under substantially greater pressure than Rejecters to cut spending. The remaining 38% of the population are Skeptics who do not reject outright but do not strongly accept the idea that humans cause climate change. Their CBI of 75 is in line with the 76 CBI of Believers.

There is a direct link between a consumer’s expression of belief that humans cause climate change and that consumer’s perception that they are doing more, less or the same as the average consumer to slow global climate change and protect the environment.

The percent of Americans who contend they are doing more than the average American to protect the environment is higher among Believers (60%) than among Skeptics (40 %) and Rejecters (45%).

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DEMOGRAPHICS

The CBI and beliefs about whether humans cause global climate change are associated with a number of demographic characteristics, behaviors and beliefs.

…INCOME: Annual incomes of the 17% of consumers with the strongest financial balance (highest CBI) are sharply higher at $67K than the annual incomes of families with weaker financial balances. Incomes range downward in step with decreases in the CBI from $54K to $51K to $47K to $49K for those with the weakest financial balances (lowest CBI).

Family income of Rejecters at $59K is higher than family income of $51K for Believers and Skeptics – $52K.

The percent who report they have “less income than they need to live comfortably” ranges upward progressively from 17% among those with the highest CBI to 20%, 32%, 51%, and 59% among those with the weakest financial balance, or CBI.

In parallel, the percent that have less than enough income to live comfortably are lower for Rejecters at 24% than for Believers (39%) or Skeptics (38%). Those saying they have more than enough income to live comfortably are substantially higher for Rejecters (17%) than for Believers (7%) or Skeptics (7%).

…ETHNICITY: Belief that humans cause climate change is related to ethnicity which, in turn, is related to income. Rejecters are more heavily White (75%) and less heavily Black (8%) and Hispanic (8%) than Believers. Believers are 64% White, 14% Black, 13% Hispanic, and 10% Other. Skeptics resemble Believers, in that 67% are White, 11% are Black, 14% Hispanic, and 8% are Other.

…EDUCATION AND AGE: The percent of college graduates is highest among Rejecters (35%) and Believers (34%) and lowest for Skeptics (27%).

There is no substantial difference in the average age of members of each group.

RELATION OF ATTITUDES AND ACTION

Stagflation energizes consumers to action but does not generate belief that human activity causes global climate change. Concern about the environment has been building for decades, but willingness to make sacrifices to protect the environment has not built proportionately.

Our 2007 study of what Americans are doing are doing to protect the environment, titled “A ‘Pastel’ Green Revolution” found Americans paying lip service to environmental protection, but not making sacrifices to that end.

Consumers expressed willingness to patronize retailers and buy products that are promoted as “green” over those that are not identified as “green.” But, consumers were not willing buy “green” products that are lower quality and higher priced than mainstream products offered by industry.

Now, that stagflation is forcing consumers to cut spending, industry feels the pain of lower sales and takes action. The auto industry, for example, is striving to create the environmental friendly products the consumer prefers to buy if they do not have to accept poorer quality or pay higher prices.

SPENDING AND BELIEF ABOUT CLIMATE CHANGE

The index that tracks willingness to spend freely for food, clothing, gasoline, and other consumables ranges from a low of 63 for Believers to 76 for Skeptics to a high of 92 for Rejecters.

The index tracking active shopping – reading ads, checking prices, visiting dealers – for new cars, housing, and other major goods is highest for Rejecters (96), second highest for Believers (82), and lowest for Skeptics (70).

There are major differences in consumers’ propensity to spend for specific types of products. In June/July 2008, the percent cutting spending for clothing ranges from a high of 70% for Believers to 63% for Skeptics, and only 43% for Rejecters. For gasoline, 80% of Believers are cutting driving, 78% of Skeptics, and 66% of Rejecters. For new cars, the percent actively shopping ranges from a low of 3% for Believers and 4% for Skeptics to a high of 9% among Rejecters.

The percent actively shopping for personal computers is similar for the three groups: 8% of Believers, 6% of Skeptics, and 7% of Rejecters.

MAJOR PROBLEMS FACING THE NATION

Believers, Skeptics and Rejecters are in fair consensus that the economy is the nation’s major problem. “Recession” is named spontaneously as a major problem by 36% of Believers, 30% of Skeptics, and 25% of Rejecters. “Inflation” is spontaneously mentioned by 33% of Believers, 33% of Skeptics, and 23% of Rejecters.

On non-economic issues, the problems named spontaneously differ widely from group to group. “Moral issues/lack of morality” is named spontaneously as a national problem by fewer Believers (6%) and Skeptics (5%) than Rejecters (13%). Similarly, mentions of “immigration” as a national problem are more frequently made by Rejecters (9%) than by Believers (4%) or Skeptics (4%).

Overall, Rejecters are more optimistic about how “things are going for the nation” than the balance of the population. Among Rejecters, 19% say things are going better, while only 5% of Believers and 7% of Skeptics say things are going better.

POLITICS

Consumers feeling unable to cope with stagflation by taking personal action turn to the government for help. They are in favor of regime change.

Believers lean more heavily Democratic (63%) than Republican (17%). Rejecters lean more heavily Republican (57%) than Democratic (25%), and Skeptics lean 45% Democratic versus 28% Republican.

When asked “If miracles could happen, which one President since the nation was founded would you want to come back to lead the nation?” spontaneous mentions among Believers were: John F. Kennedy (19%), Bill Clinton (15%), Franklin Roosevelt (9%), Abraham Lincoln (8%), and Ronald Regan (5%).

Among Rejecters, spontaneous mentions of favorite past President are dramatically different. Ronald Regan garners the most mentions (37%), followed by John F Kennedy (8%), Abraham Lincoln (6%), with Bill Clinton and Franklin Roosevelt at 5% each.

Skeptics’ preferences run: John F. Kennedy (16%); Ronald Reagan (12%), Bill Clinton (11%), Abraham Lincoln (7%), and Franklin Roosevelt (6%).

What these preferences for past Presidents foretell for the winner of the 2008 Presidential election is not yet clear. Among Believers, Obama leads McCain by a ratio of 39% to 12%. Among Rejecters, McCain leads Obama by a ratio of 39% to 10%. Among Skeptics, Obama leads McCain 25% to 19%.

GOING FORWARD

In a twist of fate, just as a faltering economy causes Americans to cut back on spending and reduce their impact on the environment, rapid economic growth in China, India and other parts of the globe induce the vast populations of less developed nations to increase their spending and their impact on the environment.

ANTICIPATING THE FUTURE

Contemporaneous and repeated views of what is actually happening as it happens provide a basis for continuously making and correcting projections of the future.

8Sages is a unique source of contemporaneous economic statistics. Based on consumer interviews – results of which become available almost immediately once the data are collected – 8Sages statistics present a more current picture of the economy than statistics from government and trade sources. Consumer survey statistics, however, are not as reliable or detailed as statistics gathered by the government or the trade.

To anticipate the future, it is important to utilize the full range of statistics available from consumer surveys and from government and trade sources.

But statistics from whatever source do not bear their interpretation on their faces. To grasp their meaning requires analysis, insight, and inspiration.

To secure a rounded view of what is likely to happen, 8Sages continuously analyzes its own data and data from other sources.

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Click here to learn the comparision of estimates of trends in inflation based on survey findings published by Leo J. Shapiro and Associates; University of Michigan; and the National Conference Board – compared with trends based on the Consumer Price Index compiled by the Bureau of Labor statistics, which visits a sample of stores to collects data on prices charged. _________________________________________________________

Reports posted on 8Sages.com include some but not a great deal of what it learns from the analysis of available data. Analysis and exposition of analytic results take time. Including a running account of the analytic findings on 8Sages would delay the release of timely data.

8SAGES.com continues to track the economy and explore the effects of recession and inflation on various segments of the consumer population. Contact 8SAGES.com with questions or with requests for being alerted to new developments.

ALSO SEE PREVIOUS ARTICLES ON THIS TOPIC

Stagflation Persists - No END IN VIEW July 4, 2008

Stagflation Now May 25, 2008

Recession Bite – Stagflation Looms Update April 21,2008

Recession Bite – Stagflation Looms March 27, 2008