Streams

The Upshot: Our Middle Class is in Trouble

Wednesday, April 23, 2014

New York Times reporter and editor David Leonhardt discusses the recent data that show the U.S. middle class is no longer the wealthiest in the world. Also, a little on what he's planning for The Upshot, The New York Times's new data-driven site.

Guests:

David Leonhardt

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Comments [54]

@jgarbuz

If the national income goes up by 50% and the median income rises by 0.3%, then the growth in income is being consumed elsewhere. That elsewhere is largely into the pockets of the already rich - with the creation of some 'nouveau riche' - athletes, celebrities and entrepreneurs. Where else could it be going and NOT effect the broad measures of wealth for our nation? The methods used to implement the wage stagnation are varied - anti-unionism, illegal immigration, capital gains for off-shore investments and unfair international trade agreements. The Fed supplies money to the banking system at near zero rates and the their credit card arms charge a princely return for use of the funds. The Faustian bargain for slaying the inflation monster of the 1970's appears to be to give all the 'new' money to the rich - at least then the added consumption of luxury items will not add to the general price level. It's a crock and you know it.

The discount rate, the private savings function, unemployment here in the U.S. are all bass-ackwards and are significant pointers that we are going down, not up. And rather than repair any of these fundamentals our politicians find it more 'donor-friendly' to vote to repeal healthcare for the uninsured or block another Presidential appointee.

If we don't give ourselves a serious whack on the head and get to work, we are doomed.

[Because you are a former Marxist, does not make me one. Is it because I hold the workers' interests to be as important as the interests of the owners? You see what we get when we put owners' interests above the interests of the workers. You think that's better. Oh, that's right. You believe that poverty is the natural state of man.]

Apr. 24 2014 09:23 AM
amalgam from NYC by day, NJ by night

@ jgarbuz -

The "lagging" or stagnation of US median income and the growth in wealth inequality is exactly what I was referring to, and much of your analysis I agree with and know you to understand.

My overarching point is what Leonhardt's analysis towards the end of the segment where he stated that a lot of the wealth stagnation in the US is due to policy choices based on moral/ethical/ideological reasons that promote the interests of the wealthy - and capital - to the detriment of the middle class.

Poor education around the US (excellent for some) certainly is part of the equation, but so too are government tax breaks/incentives for the wealthy, government encouragement of corporate offshoring and outsourcing, government encouragement of union busting, government-initiated employer-based healthcare, fee-for-service healthcare practices, etc.

As Leonhardt said, these trends are less prevalent in countries - like Canada, Britain, Ireland, the Netherlands, Sweden - where the growth in median income has significantly outpaced the US, which has something to do with the global market, and even more to do with US government policy and the overall values of American society.

Apr. 23 2014 02:40 PM
jgarbuz from Queens

To Amalgam who wrote:

>The point is that the wealthy around the world and especially in the US are taking a greater share of the wealth over the past 30+ years than they did in the previous 40+, for a host of complicated reasons.<

Wealth is constantly being created and destroyed, like the stars in the sky. A company or corporation is a machine whose purpose is to produce profits (wealth). When it fails to do so over time, it dies. The amount of wealth being produced in the US is lagging behind the amount of wealth being produced in Asia at this particular time in history. In the future it may be in Africa or Latin America.

With the fall of Communism and socialism, billions of slaves were turned into free competitive laborers. At the same time, billions of women also joined the work force. At the same time, automation, computers and robots came online as well.
All of this has put downward pressure on wages in high wage countries like the US but opened up huge opportunities for those with mobile capital to invest in a world where investment anywhere on the planet now became possible (which it was not before the fall of communism and socialism).

And so, the owners of capital have had a large advantage over those who own nothing but their labor, especially if they have no unique technical skills. WE have been deficient in teaching our young people technical skills.

Apr. 23 2014 01:45 PM
jgarbuz from Queens

To Amalgam who wrote:

>The point is that the wealthy around the world and especially in the US are taking a greater share of the wealth over the past 30+ years than they did in the previous 40+, for a host of complicated reasons.<

Wealth is constantly being created and destroyed, like the stars in the sky. A company or corporation is a machine whose purpose is to produce profits (wealth). When it fails to do so over time, it dies. The amount of wealth being produced in the US is lagging behind the amount of wealth being produced in Asia at this particular time in history. In the future it may be in Africa or Latin America.

With the fall of Communism and socialism, billions of slaves were turned into free competitive laborers. At the same time, billions of women also joined the work force. At the same time, automation, computers and robots came online as well.
All of this has put downward pressure on wages in high wage countries like the US but opened up huge opportunities for those with mobile capital to invest in a world where investment anywhere on the planet now became possible (which it was not before the fall of communism and socialism).

And so, the owners of capital have had a large advantage over those who own nothing but their labor, especially if they have no unique technical skills. WE have been deficient in teaching our young people technical skills.

Apr. 23 2014 01:44 PM
amalgam from NYC by day, NJ by night

@ jgarbuz -

Even in a Neoliberal analysis, the labor market and peoples' work is part of a global market. Everyone acknowledges that. What I pointed out is that you specifically cited that wealthy people "take advantage of" peoples' labor and as such are not "grabbing" anything - it's point without difference.

You - not I - stated "that the people who are hiring you to do a job are robbing you of your 'surplus labor' in the form of profits," probably written reflexively because you are a former Marxist. There can certainly be a debate about whether wealth accumulation is based solely on profits or surplus labor (or likely) both, but that's not the point.

The point is that the wealthy around the world and especially in the US are taking a greater share of the wealth over the past 30+ years than they did in the previous 40+, for a host of complicated reasons. This is a fact and the pros and cons of this can and are being debated.

The bottom line is that your terminology of "grabbing" vs. "taking advantage of" are pointless and obfuscates the fact of increasing wealth inequality even before the debate is reached.

Apr. 23 2014 12:26 PM

@"theinciterNYC from NYC"

Interesting, thoughtful post.

Apr. 23 2014 11:31 AM
Bill from Highland Park, NJ

This problem gets worse: when these folks stop working, they won't have been able to save enough (or to save at all) and we will have a generation of folks living solely on Social Security. This is not just a sad human condition but a drag on the economy that will affect all of us. We need to do several policy fixes now to slow or stop this. Some suggestions:

1. make 401 k payouts tax free
2. require all employees to participate in 401k plans and to set the percentage contributed by employee and employer.
3. provide extensive consumer education in grade school and high school so the next generation has a better understanding of the financial hazards and opportunities in their personal lives.

Apr. 23 2014 11:25 AM
jgarbuz from Queens

To RUCB_ALUM

Okay, so you're a Marxist as were almost all of my professors in Brooklyn College back in the '60s. I too was a Marxist once, until I understood that I was totally wrong. Maybe you will understand how wrong you are too someday. Or maybe not. But you are still wrong either way.

Apr. 23 2014 11:02 AM

@the Caller who blames Trickle Down. I'm with you, trickle up - Putting bigger cash flows into the hand of those who will spend, does more for incomes than putting it into the hands of those who just invest it overseas.

@the caller who wants to blame Fed Policy - QE didn't BEGIN UNTIL 2009! Try again.

@jgarbuz - Pure horsesh**. Like most of your comments on topics of political economy.

@APRIL from YUPPER WEST SIDE
Use a bigger font in your browser. Hold the CTRL key and roll the wheel on your mouse.

Apr. 23 2014 10:58 AM
Zoltan from Jersey City, NJ

I grew up in New Jersey and went to school at McGill in Montreal, Canada, and then at Rutgers, in New Jersey. Two things in Canada: education is more affordable, and the minimum wage is higher.

Cheaper education allows a higher percentage of the population to attain advanced degrees, and a more educated populace qualifies for higher paying jobs, but more importantly, creates more real wealth in the society. Funding advanced education is Canada's version of "trickle-down" economics, as the intellectual capital of the most educated sector trickles down into the rest of the economy.

Higher minimum wages mean that more low-income families can afford to send their children to universities, and students can finance themselves while in school. This is more like "trickle-up" economics.

Apr. 23 2014 10:55 AM
jgarbuz from Queens

To Amalgam who wrote:

>which means that wealthy people (and capital) are "taking advantage" of the productivity of ALL workers, whether they be those in the US, China or Bangladesh.<

Well that is classical Marxist way of putting it, that the people who are hiring you to do a job are robbing you of your "surplus labor" in the form of profits. And that is the essential FLAW in Marxist theory, that labor creates wealth. Labor does NOT create wealth. Labor creates THINGS. Wealth is created when things are sold at a PROFIT. The creation of profit is the creation of wealth. Wealth = profits. Profits come from sales. If something cannot be sold at a profit, it is worthless. All that labor went for nothing, and all those wages paid to those laborers went down the drain.

Apr. 23 2014 10:45 AM
jgarbuz from Queens

To Sue who wrote:

>So, jgarbuz from Queens, based on your comment "Because Americans did not take the world markets into consideration and we lost out to others," I expect you would like to see the federal government give out huge grants to up-and-coming industries (like alternative energy) so we could be a world industry leader again. <

Not exactly, though having lived in Israel, a very tiny country cut off from all nearby markets, having to survive on exports, I saw what Israel had to do to. There was some "picking and choosing" and some investments by the chief scientist office into some startups that had some promise of success in world markets. Even the US invested in what became the INternet (ARPANET back in 1968) for initially military purposes. The US invested in microelectronics for our space program back in the '60s which led to personal computers with companies like Intel and AMD. So the US has invested, mostly by the military, in certain technologies. We did not try to invest in non-military applications, although solar panels originally came out of US investment in space solar panels for military satellites.
But the main investment is in correct education, and we have ignored technical education in favor of everyone going to college to become business majors and lawyers.

Apr. 23 2014 10:39 AM
amalgam from NYC by day, NJ by night

@jgarbuz -

You are using semantics to describe wealth-generation by the wealthy as compared to those in the middle and lower classes when you say the former

"... did not GRAB anything. They took advantage of investing in other places where wealth is growing faster such as China for example. They didn't take anything from American laborers, They took it from Chinese laborers."

You are well aware (and have discussed it before) that, among others things, investment, production and labor are global, which means that wealthy people (and capital) are "taking advantage" of the productivity of ALL workers, whether they be those in the US, China or Bangladesh.

Apr. 23 2014 10:34 AM
Jc

Does this mean Americans will stop yelling "we're number 1" at all kinds of events? We'll I guess we're still number 1 at killing each other.

Apr. 23 2014 10:32 AM
theinciterNYC from NYC

I just started reading "Twilight of the Elites" by Chris Hayes, and there was a passage in there about the idea that a meritocratic system over time will produce something like an inverted bell curve, with those with merit at one end, and those with no merit struggling at the other end. Maybe this is what's happening. Our economy is struggling de to the influx of foreigners from other countries who know how to take advantage of opportunities, leaving the poor from this country who aren't willing to do those less glamorous jobs struggling and acting out their entitlement issues. Our education system imports it's intellectual elite from other countries because it is not PC to nurture the intellectually gifted. Our manufacturing base has become extinct, imploded from within due to unions who represent their own interests and make it impossible for American companies to be competitive with foreign ones. There was a mention by someone of "weath distribution." I can almost guarantee you that most socialist countries who have social programs do not give them to non citizens who emigrated illegally. You cannot have your cake and eat it too. You cannot have a capitalist "meritocracy" which also redistributes wealth.

Apr. 23 2014 10:31 AM
APRIL from YUPPER WEST SIDE

CAPS = BAD EYES. I HAVE A PLACE IN APPALACHIA. ONCE A CHIMNEY SWEEP CLEANED OUT THE WOOD STOVE CHIMNEY. I SAID, "THANK YOU SIR." HE SAID PROUDLY, "DON'T CALL ME SIR. I'M A WORKING MAN." A NEIGHBOR THERE ASKED "WHY DON'T THEY TALK ABOUT THE WORKING CLASS?" BARBARA EHRENREICH IS PROUDLY WORKING CLASS. AND WROTE "NICKLED AND DIMED IN AMERICA". AFTER DOING WORKING CLASS JOBS FOR YEARS FOR PRACTICALLY NOTHING. I TELL CAB DRIVERS TO LEAVE NYC. SAY THE INCOME DISPARITY IS HIGHER THAN ANYWHERE ELSE IN THE COUNTRY. TRUE. IF YOU WANT TO FEEL BAD ABOUT AMERICA, CHECK OUT OUR STANDING ON HUMAN RIGHTS WATCH AND REPORTERS WITHOUT BORDERS. CANADA IS FAR ABOVE US. AS ARE A LOT OF COUNTRIES.

Apr. 23 2014 10:28 AM
jgarbuz from Queens

To fuva
The answer is to do what the Japanese did 50 years ago. For our companies and workers to think about what do Japanese and European and Israeli kitchens look like and what kind of products can we make and export from here to there successfully. Of course we do fine exporting our music and movies and software other things that don't require being put onto ships or planes and requiring a lot of energy to export.
The fact is, it probably pays to make hardware abroad and software here in the US.
WE have to learn what others need outside our US bubble need and supply it. That is what the Japanese did to us. They took pictures of everything including US kitchen sinks.

Apr. 23 2014 10:27 AM
Peg

If our 55-65- year olds are "the most skilled in the world," why are they losing their jobs in droves and why are they the least likely to be hired?

Apr. 23 2014 10:25 AM
Taher from Croton on Hudson

So what will be the result of millions living in poverty? Crime. Organized crime as a job. Mexico is the model here. American hyper capitalism at it's best.

Apr. 23 2014 10:25 AM
Sue from Manhattan

Jenny from Brooklyn, well said.

I lay this at the door of the GOP ("Greedy Old Party") and radical libertarians. "Trickle down economics" is like a dog lifting its leg and "trickling" down its waste onto the rest of us.

Apr. 23 2014 10:25 AM
blacksocialist from BKbaby

educational debt.... china college graduates in 2001 - 1 million..... 2012 - 7 million.... projected by 2025 - 125 million.... as long as we bankrupt people for getting an education we will continue to decline.... gotta love it

Apr. 23 2014 10:25 AM
jade

Why aren't we taxing the wealthy more? Why do we let corporations get away with paying low taxes? How can we allow there to be no distinction between a "person" and a "natural person"? Why do we pay CEOs so damned much? Jaimie Dimon isn't worth it.

Apr. 23 2014 10:24 AM

Why is real estate market in the Washington area the strongest in the nation??

See the first post on this thread.

Apr. 23 2014 10:23 AM
David from Manhattan

As a proud American, I have been trying to convince my friend (who is from Europe) to stay in America. I'm finding I have less and less ammunition. And now, I am realizing perhaps that HE, in fact, is the lucky one who can go back to a country where among many things one doesn't go bankrupt from say having a health situation. My salary is considered high and still I feel I am not keeping up with the costs of everything.

Apr. 23 2014 10:23 AM
Estelle from Brooklyn

Shrinking middle class? How about blaming union-busting.

Apr. 23 2014 10:22 AM
Brandon from Manhattan

The difference is globalization and our free-er trade arrangments that are usually one way. Everything else this guy talks about is hot air.

Apr. 23 2014 10:22 AM
Sue from Manhattan

So, jgarbuz from Queens, based on your comment "Because Americans did not take the world markets into consideration and we lost out to others," I expect you would like to see the federal government give out huge grants to up-and-coming industries (like alternative energy) so we could be a world industry leader again.

For example, if we don't spend a ton and come up with innovative solutions to our energy needs, we'll be left buying our solar panels and wind farm equipment from China, Japan, etc. We can choose to be either a leader or customer of foreign countries, isn't that what you're saying?

Apr. 23 2014 10:22 AM
jgarbuz from Queens

To RUCB_ALUM who wrote:

>While middle class incomes were stagnant. To summarize it, the Top is taking advantage of their position to GRAB IT ALL.<

No, they are usually investors in multinational companies who do business around the world where the growth rates are greater. By contrast, workers only invest their labor unless they have stock portfolios with foreign investments as well.
They did not GRAB anything. They took advantage of investing in other places where wealth is growing faster such as China for example. They didn't take anything from American laborers, They took it from Chinese laborers.

Apr. 23 2014 10:22 AM
anon from Winesburg

Thanks Mar- er, I mean, Joyce

Apr. 23 2014 10:20 AM
Robert from NTC

And the new city administration, while we're on the subject, should stop patting itself on the back for making the "minimum wage" $8/hr! REALLY? Eight bucks and hour? WOW. that's what it should have been back ing 1980 not 2014. Even this big deal $10.10 the pres touts is not a real livable wage, get it "LIVABLE WAGE". It's time to move away from minimum wage to a livable wage because that's what's important.

Apr. 23 2014 10:20 AM
pat

Started in 80's as effect of Ronald Reagan's "trickle down" economic theory.

Apr. 23 2014 10:19 AM
Joyce from NYC

So here's a question:

In The Triple Package: How Three Unlikely Traits Explain the Rise and Fall of Cultural Groups in America, Amy Chua and Jed Rubenfeld show, at the end of their book, that American's in general no longer have the Triple Package -- belief in themselves, drive to improve, and ability to delay gratification.

So, should the solution to this problem be:
- more socialism
- people getting their act together and learning fractions in school

Apr. 23 2014 10:19 AM

The "income inequality crisis" is between the kleptocrats, er I meant bureaucrats, in Washington and the stupid fools who slog away in the rest of the country.
(see my post below)

Apr. 23 2014 10:18 AM
carolita from nyc

One tip-off for me was the two times I came back from Europe and needed a quick job. In 1993 I got hostessing work that paid $11 an hour plus a cut of the wait staff's tips, and this was considered average. In 1998, I came back and got work hostessing in the same kind of restaurant (fancy, chic), but this time it was not only sill $11 an hour, but there was no more cut of the wait staff's tips, and it seems like no one else was offering that cut anymore, either. So, basically, the pay for hostessing had not just remained the same over the years, but it was actually worse. And if I look at what is offered to hostesses these days, it looks like it's STILL $11 an hour! In 2014! Can you imagine trying to live on the same pay in 2014 that you lived on in 1993?

Apr. 23 2014 10:18 AM
Sue from Manhattan

We can determine in every market what people need to make to support themselves without needing government assistance, say $15 an hour. But since businesses here must complete globally (thanks to NAFTA, etc), they likely can't afford to pay what workers need to survive. Thus, we need the government to subsidize existing employers so they can pay a living wage AND create a WPA-style subsidized-pay jobs for everyone willing and able to work -- to give them the dignity of working and supporting the family, to pump money into our "consumer economy," to shrink the rolls of welfare/food stamps/etc. Our economy would zoom ahead and we would lift people doing a good, solid days work out of poverty.

Wanna fix the economy, income inequality and bring back the middle class? Stop the hand-wringing and follow this prescription.

Apr. 23 2014 10:17 AM
fuva from harlemworld

As usual, jgarbuz offers a possible explanation and no solution. Just resignation.

Apr. 23 2014 10:17 AM
John A

Nice reporting.
So where is the break-line where the US still leads.? The thing to watch now is how that population fraction will shrink to near zero.

Apr. 23 2014 10:16 AM
fuva from harlemworld

The problem is not inequality; the problem is massive and growing inequality...

The more money/power the rich have, the more they use it to get more.
The notion of "trickle down" was a delusion about the mentality of rich.
It's one of many socioeconomic "doctrines" -- including the "lazy poor" -- that we will have to get over.

Apr. 23 2014 10:15 AM

2000 - GDP $10.2T
2013 - GDP $15.6T

While middle class incomes were stagnant. To summarize it, the Top is taking advantage of their position to GRAB IT ALL.

It started under Reagan and accelerated during our Phantom Global War on Terror. However, there is far more than enough blame to go around for every federal politician since 1980.

Five of the Top Ten median income counties in the U.S. are suburbs of D.C. As much as his ODS gets in the way, MC has a point on this one.

Apr. 23 2014 10:14 AM
Jim from NJ

You know, every time a politician speaks they talk about how the USA is the best at everything - most wealthy, most powerful, etc. In reality the USA isn't the best country in the world for everything. When someone expresses that, the reaction is typically "If you don't like this country then leave!" I don't understand this reaction. The same people who point out the weaknesses in the USA, may also be able to help make it better. There's no shame in needing improvement and our political representatives should have the guts to say so. If we don't face up to the facts, we'll stay stuck in this hubris-fueled death spiral here in the USA.

Apr. 23 2014 10:13 AM
Jenny from Brooklyn

Not sure if I should post this here or for the sleep story, but I could not get to sleep last night after reading this article.

Not because it shocked me, but because I know it already - my partner is from Europe.

What upsets me so much is HOW true it is, and the degree to which ultra conservatives have BRAINWASHED so many Americans to believing that Europe and Canada is an evil place where they hate their healthcare system, kill the elderly, and don't have the general bliss and success that we have - all untrue of course. The pro-greed right wing here in the US needs to have a pretend enemy so Americans stay ignorant and don't get upset about how much better our nation could be, if we did one simple thing: change the tax system so the rich and especially ultra-rich pay more.

Apr. 23 2014 10:11 AM
jgarbuz from Queens

It's because of American arrogance and refusal to adapt our economy to the needs of the world. Let me give one small personal example. When I lived in Israel in the mid 1980s I lived in a typically cramped, small Israeli apartment. We needed appliances, including a dish washing machine. But all the imported American dish washers were large units made for typically large suburban American kitchens. There were no table top models. The only available table top models were Italian, Japanese or Swedish which was the most expensive. We ended up buying the Swedish table top washing machine as it appeared to be the sturdiest.
Same with other appliances and cars. So you ask why so much of our industry jobs went abroad? Because Americans did not take the world markets into consideration and we lost out to others. We did not think to be an exporting nation until it was very late in the game.

Apr. 23 2014 10:10 AM
fuva from harlemworld

Obviously, this is a failure of our representatives in our government. Major part of their job is to prognosticate, anticipate crises and avoid them. Clearly, one solution is to find a way to monitor and hold them accountable, while we slave away on our below-living wage jobs...

Apr. 23 2014 10:10 AM
Sue from Manhattan

Well, how do the Canadians finance their elections?

If Wikipedia is correct, there's a heavy subsidy by the public, so less of an emphasis on private fund-raising (so less lobbyist, special interests, buying of legislators, etc).

So of course there's less corruption and, I would guess, fewer laws favoring the rich (such as, for example, our law giving preferential tax treatment to earnings of hedge fund managers).

Apr. 23 2014 10:10 AM
jade

Canada and Britain have single-payer national healthcare. (You knew someone was going to point that out, didn't you?)

My monthly health insurance premium is higher than my rent. No joke.

Apr. 23 2014 10:09 AM
Jane from Queens

A huge reason for that middle class data and US wealth is that the top 5% of the population has grown tremendously. That's where the profits have gone.

Apr. 23 2014 10:08 AM
Dee from NJ

I didn't need a survey to figure this out. As a Canadian living in NJ, I had a medical emergency during a lay off, and the experience almost bankrupted me. I have just sold my house and am moving back to Canada. My Canadian health insurance costs $60.00 per month. In New Jersey it is $1200.00 per month. My child goes to university in Canada for a 10th the price and plans to stay there after he completes his education.

Apr. 23 2014 10:07 AM
Inquisigal from Brooklyn

I'm curious what impact these other countries' regulations in the banking & financial industry, as well as their socialist agendas, ultimately impacts this data....and how the US is failing because we are hellbent on keeping the free market our ultimate guide.

Apr. 23 2014 10:06 AM
Nick from UWS

Why have the Canadians surpassed us? Because they are a quiet, reasonable and apparently mature people who don't waste their blood and treasure on corrupt wars and other unbelievably moronic, wasteful and destructive activities.

Apr. 23 2014 10:06 AM
Robert from NYC

So then you're saying the republicans succeeded. This IS about a deteriorating economy and we just aren't seeing it YET! Well the repubs succeeded with the help of the lackey, wimpy, mediocre dems. Simply put, we suck!

Apr. 23 2014 10:04 AM
antonio from baySide

I bet there is a correlation to whether or not those countries have some kind of socialized medicine...

Apr. 23 2014 10:03 AM
Ms Wittlechuz

@ Chuzzlewit - sorry to hear you're a "poor slob who posts here."

Apr. 23 2014 09:38 AM
Joe Mirsky from Pompton Lakes NJ

From my book Ornamentally Incorrect

Requiem for the Middle Class

"There's class warfare, all right, but it's my class, the rich class, that's making war, and we're winning." Warren Buffet — The New York Times, November 26, 2006.

"The World is dividing into two blocs - the Plutonomy and the rest. The U.S., UK, and Canada are the key Plutonomies - economies powered by the wealthy. Continental Europe (ex-Italy) and Japan are in the egalitarian bloc."

This is from leaked Citigroup internal memos from 2005 and 2006. Plutonomy: Buying luxury, Explaining Global Imbalances and Revisiting Plutonomy: The Rich Getting Richer see the U.S. as a plutonomy, a society in which most of the wealth goes to an ever-shrinking minority.

According to the memos, the Top 1% accounted For 20% of income*, 40% of financial wealth and 33% of net worth in the U.S. (more than the net worth of the bottom 95% of households put together) in 2001.

The memos say that since the rich do most of the spending (they estimate that the top 20% did 60% of spending in 2005), investors should buy stocks of companies that sell to the rich. Citi put together a basket of "plutonomy stocks" of companies that cater to the wealthy. Tiffanys, Coach, Porsche, Burberry, Sothebys and Four Seasons Hotels are a few in the basket.

So what could go wrong? "At some point it is likely that labor will fight back against the rising profit share of the rich and there will be a political backlash against the rising wealth of the rich." That pesky one man one vote thing. But don't blame the messenger: "We should make clear that we have no normative view on whether plutonomies are good or bad. Our analysis is based on the facts, not what the society should look like."

(According to Deutsche Bank, 24% of luxury goods are bought by those middle-class Japanese egalitarians. The Japanese scrimp on other things to buy upscale status symbols. Since the earthquake and tsunami, Japanese demand for luxury is expected to decline substantially for some time.)

Citigroup was bailed out in November 2008 with $50 billion and loan guarantees of over $300 billion. It paid it back by December, 2010, with a $12 billion profit to the taxpayers. Citigroup was kicked out of the Dow after the stock price fell to 97 cents in 2009.

I'm no dismal scientist, but it seems to me that everybody's income ultimately derives from middle class people buying stuff. We're the plankton in the economic food chain. So if middle class people can't afford stuff, what will become of "plutonomy"? Indeed, what will become of us all?

* 24% by 2007. in 1915 it was 18%, rose to 23% by 1929, fell with the crash to 15%, then fell to under 10% from 1953 to the late 70's. Economists call this the "Great Compression". Ushered in by the New Deal, the rise of labor, and the GI Bill, it coincides with the golden era of the middle class in America. The subsequent rise in income inequality is called the "Great Divergence."

Copyright © 2013 Joseph Mirsky

Apr. 23 2014 08:31 AM

Ask Leonhardt about the “middle class” in the Washington D.C. area and how well the bureaucrats are paying THEMSELVES. If the poor slobs who listen here and post here (or work at WNYC!) want to live very nicely and work no extra hours, join the federal government. (Maybe more Canadians work for their government.)

Yesterday’s WALL STREET JOURNAL had an astounding piece on just how much the people in federal agencies make at ALL levels compared to the private sector. While the average salary (Bureau of Labor Statistics) across all occupations was $45,790, the average salary at the Consumer Financial Protection Board (Elizabeth Warren’s baby), the FDIC, and the Office of the Currency exceeded $190,000 in 2012!! The Federal Reserve is probably higher but they refuse to release employee salary stats.
And, no, these are not specialized people.
Secretaries average $79,182, drivers of the agencies’ town cars (!) get $82,130 and TRAINEES at Elizabeth Warren’s new CFPB gig get $110,759! (attention WNYC interns and trainees!) Warren’s Consumer Financial Protection Board (LOL, an oxymoron) in 2012 paid 68% of all employees more than $100,000 ... and that doesn’t include the FULL BENEFITS AND HEALTHCARE they receive.

(Guess Who Makes More Than Bankers: Their Regulators
http://online.wsj.com/news/articles/SB10001424052702304311204579507512375765276?KEYWORDS=Paul+kupiec&mg=reno64-wsj)

Apr. 23 2014 07:32 AM

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