Wealthy Americans fuel half of U.S. economy consumer spending
bloomberg.com
bloomberg.com
I had a baby proofer try to charge me 4 grand for a handful of outlets and corner pads.
When I think about wealth and quality of life, I'm usually trying to eliminate the mundane in my personal life without even thinking of the "cost". I can afford healthcare, and car maintenance.....but I'm not at a level where I can keep a personal assistant on-call 24/7 to sort through my mail and then go buy groceries even if I want them at 2am or something. It's interesting you mentioned spending a "huge sum" on organic groceries....I think I eat decently well but I live in Japan where adequate-quality food in adequate portions doesn't bust your wallet, especially if you have a USD income.
Until I can just tell someone "I have identified a problem. Make it go away, these are your restraints and constraints in finding a solution." I will still consider myself a peasant, no matter how much grass-fed beef or how many Swiss watches (just bought my first... a used limited-edition Edox) I can afford.
One of the biggest differences between those salary levels is the housing they enable. 200k salary will allow for owning a home in most places (in the US, at least), while 50k will not. From there flows a lot of other things, like crime/safety, schools (if you have kids), etc, and even can improve your example: 200k can get you a place closer to work with a shorter commute, even if some of it still is spent in rush hour.
I don’t understand how those can both be true. Having enough money that you don’t need to work anymore is pretty much the definition of having ‘fuck you’ money.
A 4-$-figure subscription goes into a escrow pool, and disciplines you into reducing other expenditures
you can make periodic invest/decline/accumulate decisions from the pool in various funding rounds
A lot of the concentration of wealth comes from the fact that economically there is capital, goods, and people. We made it super easy for capital to flow around the globe, moderately easy for goods to flow around the globe, and difficult for people to flow around the globe.
An Apple phone made in China, sold in South Africa, still sends money (capital) back to the US. This lets a few people gain extraordinary leverage at the expense of the lower ends of the curve in the United States who have seen their jobs shipped overseas.
Huh, I’ve had the exact opposite experience, and now I’d love to talk to someone who holds the beliefs you described.
So, what you say is correct in some ways. Some do get more leverage while others jobs are shipped overseas. Who is getting leverage is every party benefiting from these arrangements. Interesting enough, that includes companies in U.S., South Africa, and China.
But you're not wrong, the real crux of where the inequality happens is in the bond between people - represented by money - which is nothing but an IOU, a promise of a favor. There's a reason why 2 nations are often leery about what currency to trade in, as it can easily be manipulated for unfair advantage.
The OP questioned people's stances on wealth inequality and free trade, implying that the growing inequality stems from free trade policies. This is understandable from solely an American perspective, but globally and economically speaking, this is untrue. My argument is that it's rather government policies around credit (and its costs (ie taxes)) which fundamentally drive economic inequality.
larger revenues which would contribute to better education (healthcare, infrastructure etc)
The state takes a much larger share of your salary than the shareholders do, so no you are wrong here. Most money do not go to shareholders, it goes to the state taxes to fund programs and worker salaries, increasing those is a good thing.
The state takes a much larger share of your salary than the shareholders do
It has never been clear to me how having a single universal funds rate for the entire economy would prevent this very scenario of diverging fortunes between those with large capital reserves and those without. In the name of fighting inflation, small businesses now struggle for access to cheap credit and have been under stressful conditions for years now while richer American entities continue to bid up prices of luxury items and average home prices. The reality on the ground is far more dire than what the headline metrics show as we see an entire generation push up average duration of long term credit like car loans or home loans and thus set themselves back from otherwise needed population milestones by a decade or more right now.
The old cliche about "The first Million dollars is the hardest, but the next Million is an eventuality" comes from this very phenomenon we're seeing.
There has to be a better way for the Fed to have a fine grained approach at applying friction to money supply and credit rather than hitting everything in the economy at once.
He is calling for a blow off top followed by a deflationary bust fwiw.
Unfortunately these kind of predictions are impossible to trust, even if the predictor is known to make good calls. Michael Bury called the 2008 financial crisis and made a killing off of it. Since then he’s been periodically predicting a water-scarcity-driven recession, deleting and undeleting his twitter every couple of years. It never happens. Even the best economist can’t predict the timing of these things. If somebody believes they _can_, that just makes me suspect that they’re not wise enough to know they can’t predict it, and probably aren’t very skilled. Or maybe they’ll be the first to get it right — but how could I confirm that, without blind faith?
For example Trump and tarrifs have nothing to do with his forecast whatsoever. It's a long term macro forecast that trumps presidents etc.
consumption inequality < income inequality < wealth inequality
https://cepr.org/voxeu/columns/consumption-and-income-inequa...
If you’re poor, you tend to have to spend a much higher fraction of your wealth on consumption just to survive.
No tax filing, still lower rates for poor people. That'd be nice.
But also there's the very real problem of wealth concentration. The economy works best with flowing income. It works worst when money is at rest. With a sales tax only you end up in a situation where wealth can be endlessly horded, which takes that velocity of money out of the market.
For example. Let's say there's 1000 monies and 100 people's. If bread costs 10 monies everyone gets fed if wealth is evenly distributed. However, as wealth concentrates into one person less people can afford to eat which has a knock on effect of potentially putting bakers out of business (ultimately raising the price of bread).
Sales tax only explicitly favors wealth concentration. The more money you have the more you can defer and invest to accumulate more wealth. If you don't have enough money then it's impossible to ever start accumulating.
There are ancillary benefits to having a progressive and aggressive tax system. If there's one thing business owners hate, it's giving money to the government. So if they can avoid being taxed by hiring more employees or paying them a higher salary, that's exactly what they'll do. It flips the incentives around revenue and pushes businesses to invest in the business.
That was a huge driving factor of the innovations in the 60s, 70, and early 80s. We've been stagnating since mainly because the government has been slowly pulling back on taxation making it much more profitable to horde rather than invest and innovate.
This is basically arguing the world works best when the rich buy bigger yachts instead of bigger factories. All of this wealth the rich have isn't gold coins in a giant vault like scrooge McDuck, it's a sheet of paper that says they own .3% of Microsoft.
> For example. Let's say there's 1000 monies and 100 people's. If bread costs 10 monies everyone gets fed if wealth is evenly distributed. However, as wealth concentrates into one person less people can afford to eat which has a knock on effect of potentially putting bakers out of business (ultimately raising the price of bread).
What you're describing is a recession do the a drop in aggregate demand. Yeah this is bad and we have monetary and fiscal policy to reverse it. And usually monetary and fiscal policy are better because if we just fixed it by incentivizing the rich to spend more money on consumer goods we'd have more workers building mansions vs homes. Not to mention we are currently do not have that problem, which is why we have inflation above target.
I think there are a lot of good reasons to tax the rich (and upper middle class) more, like our ballooning deficit, but creating tax incentives so the rich spend more money in an economy that is already on the verge of overheating isn't one of them.
Yachts are wealth that would be taxed. And in fact, assuming you are taxing the rich based on their wealth/property/ and income then you are in fact incentivizing them to buy bigger factories rather than yachts. The bigger factory generates more wealth for them while not being taxed because it isn't directly owned by them. A yacht only costs them money.
> All of this wealth the rich have isn't gold coins in a giant vault like scrooge McDuck, it's a sheet of paper that says they own .3% of Microsoft.
And what do those sheets of paper do? Do they create jobs? Do they employ people?
The problem with the investment ownership model is it's completely speculative without any actual feedback into the economy. The only difference between the paper that grants ownership of microsoft and the paper that allows you to pay back debt is one has speculative value for trade. Because the value of the sheet of paper is based on what the market values that sheet of paper as, it creates perverse incentives that aren't actually economically good. For example, the last couple of years when tech businesses hired a bunch of employees because that made the stock go up, then fired a bunch of employees because that make the stock go up. Businesses are being ran not based on whether or not the goods are being sold or valuable, but rather whether or not the speculators in the market think it's good or valuable. That's a major negative distortion of the market.
The entire point of stock isn't bigger factories, it's to enable bigger yachts.
Stock as compensation, particularly for business owners, is one of the worst inventions of society. It is what causes enshittification.
> if we just fixed it by incentivizing the rich to spend more money on consumer goods we'd have more workers building mansions vs homes.
Right, but as you point out, that's not what the rich are doing. They are instead buying paper that does not feed back into the economy. But further, there are only so many consumer good someone could buy before they are completely satiated. There's only so much bread one person needs. There are limits to the bed or computer someone could buy. We are at the point where the wealth literally have more money than they can spend and that's part of the problem.
> Not to mention we are currently do not have that problem, which is why we have inflation above target.
We have inflation above target because businesses have merged and consolidated to the point where they can aggressively raise prices not because they need to but because they have the general population over a barrel. Collusion and speculation is a big factor in a lot of the inflation.
That's not universally true, after all egg price inflation has been due to herd culling for bird flu. It is however fairly true and something that businesses are bragging about during their quarterly shareholder meetings.
> creating tax incentives so the rich spend more money in an economy that is already on the verge of overheating isn't one of them.
Where and how they spend their money matters. And part of the defense against further inflation can be more taxes/regulations. For example, vacancy taxes for residential units which would help pull back the real-estate market.
Everything you said is true regardless of how taxes are structured, so I don't see how that's supposed to support your claim that "taxing the rich based on their wealth/property/ and income then you are in fact incentivizing them to buy bigger factories rather than yachts".
> Businesses are being ran not based on whether or not the goods are being sold or valuable, but rather whether or not the speculators in the market think it's good or valuable.
I don't see what the issue is. We don't have a crystal ball that tells us "whether or not the goods are being sold or valuable", so the latter is the best we have. How else are we going to allocate capital? A central economic planning committee?
>The entire point of stock isn't bigger factories, it's to enable bigger yachts.
If you want to be reductive, sure. If you want to be even more reductive, you might as well go with "Everything in the world is about sex, except sex. Sex is about power".
>Right, but as you point out, that's not what the rich are doing. They are instead buying paper that does not feed back into the economy.
The people who invest in VCs, PE, and private credit are most definitely not "buying paper that does not feed back into the economy". VCs and PEs directly fund startups and other businesses, and private credit funds infrastructure projects and other corporate spending. Moreover, even if spending $100 to buy shares in Tesla doesn't directly cause $100 being spent on battery gigafactories or whatever, doesn't mean it "does not feed back into the economy". You're paying off a chain of investors, all the way back to the investor who participated in Tesla's IPO, who did directly fund Tesla's factories. Claiming otherwise makes as much sense as "buying an apple from the grocery store doesn't feed back into apple farmers, because you're only paying the grocery store".
>We have inflation above target because businesses have merged and consolidated to the point where they can aggressively raise prices not because they need to but because they have the general population over a barrel. Collusion and speculation is a big factor in a lot of the inflation.
Source?
>That's not universally true, after all egg price inflation has been due to herd culling for bird flu. It is however fairly true and something that businesses are bragging about during their quarterly shareholder meetings.
Executives bragging about how greedy they are is basically the equivalent of rappers bragging about all the crimes they've committed in their albums. In both cases their audiences like them to sound as greedy/criminal as possible, so they oblige. Securities law makes the former can't straight up lie about stuff, but the incentive structure is the same.
The more you distance and dilute from the original share, the less relation there is to the original investor. Eventually, there is simply no relation to the two. Similar to how buying a used copy of Frankenstein today has no benefit to Mary Shelley or her estate.
I should also point out that apples and other consumables have finite lifespans. The apple you buy from the grocery store has a near direct line to the farmer that sold it. Purchases of apples drive demand because they are almost immediately consumed.
Stock is more closely related to something like iron. Sure, someone had to refine it at one point and there is demand for new iron on occasion. However, generally speaking the recycling and reuse of iron has little direct impact or benefit to the original miner. Unlike iron or apples, stock never goes through a value add transformation. A share is a share. It provides no extra work or good.
> Source?
https://www.npr.org/2024/09/09/nx-s1-5103935/grocery-prices-...
No, because capital markets are far more liquid than the market for copies of Frankenstein. Every dollar that gets "invested" goes into the global pool of capital stock, some of which is used for new investments like factories or whatever. Spending a dollar on existing shares makes them ever more expensive, and therefore a poorer investment than new investments. That causes more money to be funneled into new investments. There isn't a surfeit of piled into existing shares, because the existence of such a surfeit would imply there's money for someone (institutional investors, hedge funds) to sell their existing shares to fund new investments.
>https://www.npr.org/2024/09/09/nx-s1-5103935/grocery-prices-...
The original claim was "Collusion and speculation is a big factor in a lot of the inflation.". Your article says:
>Gross profit margins of big-name stores and brands stayed mostly steady
and
>"Even though profit margins for grocery stores have gone up," he wrote in a July report, "the increase appears to be only a small contributor to the rise in food prices relative to the increase in their operating costs."
But grocery stores' margins are single digits, so at best this explains a few percent (note, not the same as percentage points) of inflation. Hardly "a big factor".
Normally I wouldn’t recommend a channel, but this one is such a gem it’s a sin not to recommend it. Watched a lot about economics and taxes before, overwhelming majority of explanations are poor and a frankly a joke.
As of Q3 2024, per https://www.federalreserve.gov/releases/z1/dataviz/dfa/distr..., the wealth held by the top 10 percent was $107T. The other 90% was $52T.
The top 10% has 67% of the wealth and only contributes half of consumer spending and a third of the GDP. They doing less than their fair share.
This wording makes it sound like consumer goods and services are the moral things to spend money on and wealthier individuals are slacking. This is silly.
There are many good things other than consumer spending that wealthy people can and do spend their money on: capital investments for new or growing businesses, philanthropy, research, etc. etc. etc.
In fact it would probably be better if wealthy people spent less money on consumer (luxury) goods and services and more on these other things—if they were, in your words, even farther from “their fair share.”
What is clear is that wealth disparity is making it hard for more than half of the country to meet basic needs, and they are not contributing towards consumer spending measures because they are unable to not because they are unwilling to.
The article makes a much better case for updating the higher tax brackets, taxing income avoidance strategies more effectively, and using the proceeds to ease the load on the least wealthy half of americans so they are able to contribute to consumer spending and live happier and healthier lives.
This is where behavioral, microeconomics, and macroeconomics meet up. You have to appreciate the stress on individuals and the social fabric that these figures imply.
I'd say you're moving the goalposts but trying to change "amount spent as an economic measure" to "caloric content" is more like looking at a football field and asking where home plate is.
The two sides often come together in the upper-middle classes, where people with more-than-comfortable incomes and financial resources will grossly overextend themselves on credit appear more well off than they already are.
I mean, of course?
Are they going to follow up with a study showing that women are responsible for a huge portion of the birthrate?
But this isn't true. This analysis of churn shows households move across income quintiles over a decade.
https://www.clevelandfed.org/publications/economic-commentar...
For the 2nd to the 5th quintile, only 3% to 23% of households are still in the same quintile a decade later. Among the lowest, it's higher at 64%, which may seem disconcerting, but one must recognize that retirees would fall in that group and often have low income for the duration of their retirement as they live off savings.
And intuitively this makes sense - people leave home to start careers often make low incomes and see progressively higher income until retirement, at which point they see a large drop incomes.
So while it may be true that the wealthiest American fuel spending, that group of wealthiest Americans is constantly changing.
I think you're misreading the table? Table 1 says that 72% of 5th-quintile households were still in the 5th quintile a decade later.
This worries me, as we're now top heavy, and therefore a larger percentage of our population is retiring over the next decade.