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[h1]U.S. Economy Is Increasingly Tied to the Rich[/h1]
by Robert Frank
Sunday, August 1, 2010
Who cares how the rich spend their money?
Well, perhaps everyone should these days. Consumer spending accountsfor roughly two-thirds of U.S. gross domestic product, or the value ofall goods and services produced in the nation. And spending by the richnow accounts for the largest share of consumer outlays in at least 20years.
According to new research from Moody's Analytics, the top5% of Americans by income account for 37% of all consumer outlays.Outlays include consumer spending, interest payments on installmentdebt and transfer payments.
[See Ways to Save on Restaurants, Travel, and More]
By contrast, the bottom 80% by income account for 39.5% of all consumer outlays.
Itis no surprise, of course, that the rich spend so much, since they earna disproportionate share of income. According to economists EmmanuelSaez and Thomas Piketty, the top 10% of earners captured about half ofall income as of 2007.
What is surprising is just how much or ourconsumer economy is now dependent on the rich, and how that share hasincreased as the U.S. emerges from recession. In the third quarter of1990, the top 5% accounted for 25% of consumer outlays. That heldrelatively steady until the mid-1990s, when it started inching up past30%. It dipped in 2003 and again in 2008, but started surging in 2009amid the greatest bull market rally in history, with the Dow JonesIndustry Average rising nearly 50% in the last nine months of the year.
MarkZandi, chief economist for Moody's Analytics, cites two main reasonsfor the increase. First, the wealthy panicked during the financialcrisis and stopped spending. When markets rebounded, they came out oftheir shells and started spending again. "I think that pent-up demandwas unleashed," he said. "It was an unusually high rate of spending."
[See 21 Things You Should Never Buy New ]
Thesecond reason is that those people in the middle- and lower-incomegroups are struggling to pay off debt and stay afloat amid risingunemployment, as Friday's data reminds us. That has crimped theirspending.
The data may be a further sign that the U.S. isbecoming a Plutonomy–an economy dependent on the spending and investingof the wealthy. And Plutonomies are far less stable than economiesbuilt on more evenly distributed income and mass consumption. "I don'tthink it's healthy for the economy to be so dependent on the top 2% ofthe income distribution," Mr. Zandi said. He added that, "In the nearterm it highlights the fragility of the recovery."
In fact, therecent spending of the wealthy may be unsustainable. Their savings ratehas gone from more than 26% in 2008 to a negative 7% in the firstquarter of 2010, according to the Moody's Analytics data. They stillhave lots of savings. But the massive draw on that in the past twoyears is unlikely to continue at the same pace.
"I think we're already seeing a slowdown in spending by this group," Mr. Zandi says.
And that should be a worry for all of us.
Ohhh nooozzzz Socialism
And since our public policy is basically dictated by corporate lobbyists our society is basically transforming into a Corporatocracy . Income inequality is the highest its ever been... yet Republicans have the masses beleiving the rich are "under attack" by anti business policies and high taxation [ Overall, the effective tax rate on high incomes fell by 7%during the Clinton presidency and 6% in the Bush era, so the top 400had a tax rate of 20% or less in 2007, far lower than the marginal taxrate of 35% that the highest income earners (over $372,650) supposedlypay. LinkLinkhttp://sociology.ucsc.edu/whorulesamerica/power/wealth.html] And EVEN if the rich were being taxed heaviliy they easily have access to many tax shelters to effictively lower their tax burden. Im not saying we should be taxing the hell out of the rich but lets not buy into this ploy that the rich are hurting just as much as everday American's are.
by Robert Frank
Sunday, August 1, 2010
Who cares how the rich spend their money?
Well, perhaps everyone should these days. Consumer spending accountsfor roughly two-thirds of U.S. gross domestic product, or the value ofall goods and services produced in the nation. And spending by the richnow accounts for the largest share of consumer outlays in at least 20years.
According to new research from Moody's Analytics, the top5% of Americans by income account for 37% of all consumer outlays.Outlays include consumer spending, interest payments on installmentdebt and transfer payments.
[See Ways to Save on Restaurants, Travel, and More]
By contrast, the bottom 80% by income account for 39.5% of all consumer outlays.
Itis no surprise, of course, that the rich spend so much, since they earna disproportionate share of income. According to economists EmmanuelSaez and Thomas Piketty, the top 10% of earners captured about half ofall income as of 2007.
What is surprising is just how much or ourconsumer economy is now dependent on the rich, and how that share hasincreased as the U.S. emerges from recession. In the third quarter of1990, the top 5% accounted for 25% of consumer outlays. That heldrelatively steady until the mid-1990s, when it started inching up past30%. It dipped in 2003 and again in 2008, but started surging in 2009amid the greatest bull market rally in history, with the Dow JonesIndustry Average rising nearly 50% in the last nine months of the year.
MarkZandi, chief economist for Moody's Analytics, cites two main reasonsfor the increase. First, the wealthy panicked during the financialcrisis and stopped spending. When markets rebounded, they came out oftheir shells and started spending again. "I think that pent-up demandwas unleashed," he said. "It was an unusually high rate of spending."
[See 21 Things You Should Never Buy New ]
Thesecond reason is that those people in the middle- and lower-incomegroups are struggling to pay off debt and stay afloat amid risingunemployment, as Friday's data reminds us. That has crimped theirspending.
The data may be a further sign that the U.S. isbecoming a Plutonomy–an economy dependent on the spending and investingof the wealthy. And Plutonomies are far less stable than economiesbuilt on more evenly distributed income and mass consumption. "I don'tthink it's healthy for the economy to be so dependent on the top 2% ofthe income distribution," Mr. Zandi said. He added that, "In the nearterm it highlights the fragility of the recovery."
In fact, therecent spending of the wealthy may be unsustainable. Their savings ratehas gone from more than 26% in 2008 to a negative 7% in the firstquarter of 2010, according to the Moody's Analytics data. They stillhave lots of savings. But the massive draw on that in the past twoyears is unlikely to continue at the same pace.
"I think we're already seeing a slowdown in spending by this group," Mr. Zandi says.
And that should be a worry for all of us.
Ohhh nooozzzz Socialism
And since our public policy is basically dictated by corporate lobbyists our society is basically transforming into a Corporatocracy . Income inequality is the highest its ever been... yet Republicans have the masses beleiving the rich are "under attack" by anti business policies and high taxation [ Overall, the effective tax rate on high incomes fell by 7%during the Clinton presidency and 6% in the Bush era, so the top 400had a tax rate of 20% or less in 2007, far lower than the marginal taxrate of 35% that the highest income earners (over $372,650) supposedlypay. LinkLinkhttp://sociology.ucsc.edu/whorulesamerica/power/wealth.html] And EVEN if the rich were being taxed heaviliy they easily have access to many tax shelters to effictively lower their tax burden. Im not saying we should be taxing the hell out of the rich but lets not buy into this ploy that the rich are hurting just as much as everday American's are.
