U.S. Economy Is Increasingly Tied to the Rich
Well, perhaps everyone should these days. Consumer spending accounts for roughly two-thirds of U.S. gross domestic product, or the value of all goods and services produced in the nation. And spending by the rich now accounts for the largest share of consumer outlays in at least 20 years.
According to new research from Moody’s Analytics, the top 5% of Americans by income account for 37% of all consumer outlays. Outlays include consumer spending, interest payments on installment debt and transfer payments.
By contrast, the bottom 80% by income account for 39.5% of all consumer outlays.
It is no surprise, of course, that the rich spend so much, since they earn a disproportionate share of income. According to economists Emmanuel Saez and Thomas Piketty, the top 10% of earners captured about half of all income as of 2007.
What is surprising is just how much or our consumer economy is now dependent on the rich, and how that share has increased as the U.S. emerges from recession. In the third quarter of 1990, the top 5% accounted for 25% of consumer outlays. That held relatively steady until the mid-1990s, when it started inching up past 30%. It dipped in 2003 and again in 2008, but started surging in 2009 amid the greatest bull market rally in history, with the Dow Jones Industry Average rising nearly 50% in the last nine months of the year.
Mark Zandi, chief economist for Moody’s Analytics, cites two main reasons for the increase. First, the wealthy panicked during the financial crisis and stopped spending. When markets rebounded, they came out of their shells and started spending again. “I think that pent-up demand was unleashed,” he said. “It was an unusually high rate of spending.”
The second reason is that those people in the middle- and lower-income groups are struggling to pay off debt and stay afloat amid rising unemployment, as Friday’s data reminds us. That has crimped their spending.
The data may be a further sign that the U.S. is becoming a Plutonomy–an economy dependent on the spending and investing of the wealthy. And Plutonomies are far less stable than economies built on more evenly distributed income and mass consumption. “I don’t think it’s healthy for the economy to be so dependent on the top 2% of the income distribution,” Mr. Zandi said. He added that, “In the near term it highlights the fragility of the recovery.”
In fact, the recent spending of the wealthy may be unsustainable. Their savings rate has gone from more than 26% in 2008 to a negative 7% in the first quarter of 2010, according to the Moody’s Analytics data. They still have lots of savings. But the massive draw on that in the past two years 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.
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Gee the left tends to want to be “fair” and take from the rich, which in itself by principle is not fair. Then they want to discourage spending even more by taxing them to death any way they can.
The rich account for 40% of the economy and they don’t want to spend because they are so unsure of what will happen to them in the future. Hmm, do you think taking their money to give to who will help? Heh it doesn’t work like that.
We’re all in this together. Going after one group harms everyone else eventually. See what the liberals never tried understanding is that the rich, or anyone self-responsible really, do not just voluntarily pay taxes. They create laws, bend rules, bribe politicians to pass exemptions to get out of the tax. The left does the same thing too. They go after their enemies which in this case are the “rich” and bribe politicians, bend rules, pass laws that affect all of us just to get to the rich. They don’t just bitch about the inequality in society, they go out and do something about it too.
The problem is, the people in the middle, (me and you), get left holding the bag. This is the real reason the middle class is disappearing.
Somebody has to pay those “new taxes” that the left passed. Guess who that is. That’s right, the PEOPLE. The very same people who voted it in for the rich. Why do you pay so much in taxes? Is it really because of government spending? Nope, that’s a big part of it but it’s really the mindset people have. Dysfunctional thinking of money leads to dysfunctional tax and economic policy. It also doesn’t help that this has severe karmic impacts on society because after all one group of people are advocating stealing of another group of people’s property.
You can call it whatever you want but at the end of the day it is still stealing. The powers greater than humanity cannot be fooled, period. China surprisingly understands this and as a result have a stronger economy but since they are not very liberal with their civil rights (if at all) they will likely fall prey to everyone else in history.
Is anyone surprised by what this article illustrates? You’d think common sense and history would teach people for once but oh well, it always repeats itself. It’ll just happen again and again and again…
All this has happened before, and it will happen again, unless we decide to make real changes in our minds and souls. Will you change? Only you can answer that; I’ve made my choice a looooooooooong time ago.
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