Economic Democracy: The Role of Consumer Sentiment in Shaping the American Economy in the 20th and 21st Centuries
Turner, Thomas C.M.
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This project employs a two-pronged approach to the questions of consumer psychology and consumer sentiment. Namely: what role do consumer psychology and expectations play in shaping macro economic outcomes, how does consumer sentiment capture those psychologies and expectations, how well does consumer sentiment capture those things, and how well does consumer sentiment relate to the eventual economic outcomes? All of these questions arose out of a recent reemergence of interest in forecasting consumer behavior in the midst of the sub-prime mortgage and subsequent global economic crisis. Section I employs four historical case studies to explore the questions of how consumer psychology has impacted economic outcomes. Each case study represents a different collection of causes and results and represents a variety of periods of economic volatility. Section 2 utilizes economic data and consumer sentiment data to evaluate the effectiveness of using consumer sentiment to capture consumer expectations that section I concludes are central to the shaping of macro economic outcomes. The project ultimately concludes that while consumer psychologies are central to shaping economic outcomes, consumer sentiment does a poor of job, in general of capturing those trends. In periods of economic volatility however, the project concludes that consumer sentiment is much more useful as an explanatory data set. In both scenarios though, consumer sentiment acts as a relatively poor forecaster of larger economic outcomes.