Begin forwarded message:
> From: dasg...@aol.com > Date: August 6, 2010 4:02:52 PM PDT > To: ramille...@aol.com > Cc: ema...@aol.com, j...@aol.com, jim6...@cwnet.com, christian.r...@gmail.com > Subject: The "U.S. Economy" Increasingly Means Just 5% of the Population, the > Rich > > U.S. Economy Is Increasingly Tied to the Rich > > By Robert Frank > Wall Street Journal blog, 5 August 2010 > http://blogs.wsj.com/wealth/2010/08/05/us-economy-is-increasingly-tied-to-the-rich/ > Who cares how the rich spend their money? > > 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, as of 2007, the top 10% of earners captured about half of ALL > income. > > 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 > today’s data remind 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 entire 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 [the rich],” Mr. > Zandi says. > > And that should be a worry for all of us. >
