Wednesday, February 19, 2014

Purchasing Power and Consumption of Goods and Service by the Middle Class Is Not Increasing

Lack of Growth in Middle America is the Major Deterrent to a Strong Recovery

Data Confirms What Was Largely Suspected

Whenever reasonable people argue that the government must adopt policy to improve economic opportunity for middle income Americans and to develop policies that will direct the increases in economic incomes towards middle income Americans conservatives of all stripe cry “socialism” or “communism” or “income redistribution” or “class warfare”.  But the truth of the matter is that income growth in middle income families is a critical component of creating economic growth for everyone.

Now new data is confirming that the Great Recession was largely a great recession only for lower and middle income families.  The wealthy did quite well.

More at the Top

The top 5 percent of earners accounted for almost 40 percent of personal consumption expenditures in 2012, up from 27 percent in 1992. Largely driven by this increase, consumption among the top 20 percent grew to more than 60 percent over the same period. 

As politicians and pundits in Washington continue to spar over whether economic inequality is in fact deepening, in corporate America there really is no debate at all. The post-recession reality is that the customer base for businesses that appeal to the middle class is shrinking as the top tier pulls even further away.

The result of course is that businesses which cater to the wealthy are doing great and that businesses that did not cater to the wealth that can change their practices are doing so.

In response to the upward shift in spending, PricewaterhouseCoopers clients like big stores and restaurants are chasing richer customers with a wider offering of high-end goods and services, or focusing on rock-bottom prices to attract the expanding ranks of penny-pinching consumers.

“As a retailer or restaurant chain, if you’re not at the really high level or the low level, that’s a tough place to be,” Mr. Maxwell said. “You don’t want to be stuck in the middle.”

Does this matter?  Well yes, if one is employed by the large retailers like Sears, J. C. Penney or even Target and Wal-Mart that are not in the luxury goods businesses.  Here’s what is happening with their customer base.

In 2012, the top 5 percent of earners were responsible for 38 percent of domestic consumption, up from 28 percent in 1995, the researchers found.

Even more striking, the current recovery has been driven almost entirely by the upper crust, according to Mr. Fazzari and Mr. Cynamon. Since 2009, the year the recession ended, inflation-adjusted spending by this top echelon has risen 17 percent, compared with just 1 percent among the bottom 95 percent.

More broadly, about 90 percent of the overall increase in inflation-adjusted consumption between 2009 and 2012 was generated by the top 20 percent of households in terms of income, according to the study, which was sponsored by the Institute for New Economic Thinking, a research group in New York.

And as the retail giants slowly sink (Sears is already on a death watch, they just don’t know it) so does the potential growth in the economy.

But the wealthy don’t really care, do they?  They got theirs, they are getting more and if they can just get a few more tax cuts then to hell with everyone else.  And if the economy tanks again, well no problem.  It didnt' tank for them last time and given current governmental policies, both Democrat and Republican it won't tank for them in the future.  So who cares?


  1. The only hope for widespread acceptance of progressive economic policy is support from the wealthy. If the wealthy do not need progressive economic policy to remain wealthy, we are in big trouble.

  2. The Great Recession has shown that the wealthy do not need progressive economic policy to remain wealthy, they can do it with control of the financial system, favorable tax regimes and political strength.

    The U. S. is moving towards resembling a corrupt Central American republic. There is little that can be done to stop this.