THE 5 percent of Americans with the highest incomes now account for 37 percent of all consumer purchases, according to the latest research from Moodys Analytics. That should come as no surprise. Our society has become more and more unequal.
When so much income goes to the top, the middle class doesnt have enough purchasing power to keep the economy going without sinking ever more deeply into debt which, as weve seen, ends badly. An economy so dependent on the spending of a few is also prone to great booms and busts. The rich splurge and speculate when their savings are doing well. But when the values of their assets tumble, they pull back. That can lead to wild gyrations. Sound familiar?
The economy wont really bounce back until Americas surge toward inequality is reversed. Even if by some miracle President Obama gets support for a second big stimulus while Ben S. Bernankes Fed keeps interest rates near zero, neither will do the trick without a middle class capable of spending. Pump-priming works only when a well contains enough water.
Look back over the last hundred years and youll see the pattern. During periods when the very rich took home a much smaller proportion of total income as in the Great Prosperity between 1947 and 1977 the nation as a whole grew faster and median wages surged. We created a virtuous cycle in which an ever growing middle class had the ability to consume more goods and services, which created more and better jobs, thereby stoking demand. The rising tide did in fact lift all boats.
During periods when the very rich took home a larger proportion as between 1918 and 1933, and in the Great Regression from 1981 to the present day growth slowed, median wages stagnated and we suffered giant downturns. Its no mere coincidence that over the last century the top earners share of the nations total income peaked in 1928 and 2007 the two years just preceding the biggest downturns.
http://www.nytimes.com/2011/09/04/o...llow-a-strengthening-of-the-middle-class.html
When so much income goes to the top, the middle class doesnt have enough purchasing power to keep the economy going without sinking ever more deeply into debt which, as weve seen, ends badly. An economy so dependent on the spending of a few is also prone to great booms and busts. The rich splurge and speculate when their savings are doing well. But when the values of their assets tumble, they pull back. That can lead to wild gyrations. Sound familiar?
The economy wont really bounce back until Americas surge toward inequality is reversed. Even if by some miracle President Obama gets support for a second big stimulus while Ben S. Bernankes Fed keeps interest rates near zero, neither will do the trick without a middle class capable of spending. Pump-priming works only when a well contains enough water.
Look back over the last hundred years and youll see the pattern. During periods when the very rich took home a much smaller proportion of total income as in the Great Prosperity between 1947 and 1977 the nation as a whole grew faster and median wages surged. We created a virtuous cycle in which an ever growing middle class had the ability to consume more goods and services, which created more and better jobs, thereby stoking demand. The rising tide did in fact lift all boats.
During periods when the very rich took home a larger proportion as between 1918 and 1933, and in the Great Regression from 1981 to the present day growth slowed, median wages stagnated and we suffered giant downturns. Its no mere coincidence that over the last century the top earners share of the nations total income peaked in 1928 and 2007 the two years just preceding the biggest downturns.
http://www.nytimes.com/2011/09/04/o...llow-a-strengthening-of-the-middle-class.html