What is the ratchet effect (picture and text) The definition of the ratchet effect The ratchet effect refers to the irreversibility of people's consumption habits after they are formed, that is, it is easy to adjust upwards but difficult to adjust downwards. Especially in the short term, consumption is irreversible and its habitual effect is large. This habit effect makes consumption depend on relative income, that is, relative to one's past peak income. Consumers are prone to increase consumption as their income increases, but are less likely to reduce consumption as their income decreases, resulting in a short-term consumption function with a positive intercept. This characteristic is called the ratchet effect. In fact, the ratchet effect can be summarized by a famous saying of Sima Guang, a statesman and writer in the Song Dynasty: It is easy to move from frugality to luxury, but it is difficult to move from luxury to frugality. The Ratchet Effect was proposed by economist Dusen Bailey. Classical economist Keynes advocated that consumption is reversible, that is, changes in absolute income levels must immediately cause changes in consumption levels. In response to this point of view, Dusenbei believes that this is actually impossible, because consumption decision-making cannot be an ideal plan, and it also depends on consumption habits. This consumption habit is influenced by many factors, such as physiological and social needs, personal experience, and the consequences of personal experience. In particular, the consumption standards achieved by an individual during the period of highest income play an important role in the formation of consumption habits. Enlightenment of the Jing wheel effect From a personal point of view, we can neither prohibit nor indulge our desires. We must control our excessive and insatiable desires. If there are no restrictions on one's own desires, excessive indulgence in luxury, and failure to cultivate frugal living habits, it will inevitably make the ancient saying that "you can't get rich for more than three generations" become inevitable, and "a gentleman who has many desires will be greedy". The desire for wealth and honor is in vain, and misfortunes are imminent; the villain has many desires, and seeks excessive uses, which leads to ruin of one's family and one's life. This is the situation where one must bribe when one is in office, and one must steal when one lives in one's hometown."