By Joshua Holland / Alternet
Walmart may be learning that simple truth the hard way. On Friday, Bloomberg reported a series of emails between company executives freaking out over the super-store’s dismal start to the new year. “Well, we just had one of those weeks here at Walmart U.S.,” wrote Cameron Geiger, senior vice president of Walmart U.S. Replenishment. “Where are all the customers? And where’s their money?” Another exec, Jerry Murray, Walmart’s vice president of finance and logistics, described the latest sales figures as, “the worst start to a month I have seen in my ~7 years with the company.”
Due to its size – Walmart sales accounted for almost 3 percent of America’s overall economic activity in 2011 — not only is the company able to dictate the business practices of its vendors, it also serves as a bellwether for the larger economy. As Matt Stoller noted last year, “because of its scale and remarkable amount of data, the company actually has more granular data about the economy than most macro-economic forecasters. As Fed Board Governor Randall Kroszner said in a June 2006 meeting, Walmart officials ‘effectively know what retail sales are before the numbers are reported because their sales are so highly correlated with overall retail sales.’”
So where is Walmart’s customers’ money? A chunk of it is in the pockets of the wealthiest 1 percent of American households, according to research by economist Emanuel Saez. He found that during the first three years of the “recovery,” as weak as it has been for most of us, those at the top of the pile grabbed 121 percent of all income gains and got 11 percent richer (PDF). And the rest of us became 0.4 percent poorer, after accounting for inflation.
Another big chunk is going to Uncle Sam in the form of a significant tax hike on the middle class and the poor that resulted from the “fiscal cliff” deal struck in the beginning of the year. And the killer is that it’s paying part of the tab of keeping most of the Bush tax cuts for those same top earners in place.
While some liberals lauded it as a win, I disagreed, noting that “for the middle class and working poor, their modest share of the Bush tax cuts are now permanent as well, but because the Dems’ payroll tax cut was allowed to expire, their taxes will nonetheless go up. And not by a little — it’ll ‘cost a typical worker about $1,000 a year, and two-earner family with six-figure incomes as much as $4,500,’ according to the Associated Press.”
That’s a big blow to families reeling not only from the “great recession” itself, but getting beaten further in the subsequent recovery. Apparently big enough that Walmart’s shoppers can no longer afford their famous “low prices.”
In part, that’s because they were in poor shape before the crash. Middle-class incomes have stagnated since the 1970s, and according to Saez, the top 1 percent of American households grabbed fully 62 percent of all the economy’s gains between 1993 and 2011. He notes that in 2011, the share of our economic output captured by those in the top 10 percent is the highest its been since 1917, when his data series begins.
That longer-term trend highlights what is arguably the biggest issue facing American democracy today: the fatal link between rising economic inequality and the diminishing political voice of the vast majority of Americans. “The more pernicious effect of economic inequality comes indirectly through its impact on political inequality,” says MIT economist Daron Acemoglu, co-author of Why Nations Fail. In an interview with Pat Garofalo of Think Progress, Acemoglu explained what he called, “a general pattern throughout history”:
When economic inequality increases, the people who have become economically more powerful will often attempt to use that power in order to gain even more political power. And once they are able to monopolize political power, they will start using that for changing the rules in their favor.
While it is first and foremost Republican obstructionism that’s prevented Washington from doing more – or, at this point, anything – to address persistently high unemployment and declining incomes for most of us, it’s the political inequality that gives them that luxury. According to a Sunlight Foundation analysis of spending during the 2010 midterms, the most rarified elites – the top 1 percent of the top 1 percent of households – accounted for almost a quarter of all political spending in this country, including direct donations to candidates and financing outside PAC spending.
According to the report:
The One Percent of the One Percent are not average Americans. Overwhelmingly, they are corporate executives, investors, lobbyists, and lawyers. A good number appear to be highly ideological. They give to multiple candidates and to parties and independent issue groups. They tend to cluster in a limited number of metropolitan zip codes, especially in New York, Washington, Chicago, and Los Angeles.
In the 2010 election cycle, the average One Percent of One Percenter spent $28,913, more than the median individual income of $26,364.
This helps explain why the one painless way to reduce the deficit – addressing unemployment and doing something to boost stagnant incomes – gets so little traction within a political establishment that’s come to a bipartisan consensus that ordinary Americans have to experience some “pain” in order to achieve fiscal balance. According to a recent report by Demos, “While a number of factors may explain this hierarchy of priorities in Washington, one point is clear: The focus on deficit reduction over jobs has reflected the concerns of affluent Americans and financial interests while downplaying an urgent desire by a majority of Americans to address job creation.”
The other shoe is about to fall – or another shoe is about to fall – if the sequester kicks in on March 1, as is widely expected. According to an analysis by Macroeconomic Advisers, the cuts will kill 700,000 jobs and reduce economic growth by more than half of a percentage point. That’s aside from the pain deep cuts to programs that aid the working poor will inflict.
The donor class may not be happy about that outcome, but it’s the product of the Tea Party monster a small number of the wealthiest Americans created to advance their narrow self-interests. As Greg Sargent noted in the Washington Post, Republicans could simply declare victory and kill the sequester – the deficit is falling fast and they’ve gotten far more than they’ve given:
Right now, we’ve already achieved around $2.2 trillion in deficit reduction: Dems have agreed to around $1.5 trillion in spending cuts; Republicans have agreed to around $700 billion in revenues. Where does that leave us? The total: Dems have thus far conceded around twice as much in spending cuts as Republicans have in revenues.
But we’re in the grip of a vicious cycle. Households in the top percent today take in twice as much pre-tax revenue as they did during the four decades following World War II, leaving less for the rest of us. That’s hurting our ability to buy the goods and services that keep the economy humming at full employment. They’ve invested their windfall in politicians, who are looking to inflict more pain on ordinary working people in order to keep their benefactors’ taxes low. They’ve driven the discourse to embrace catastrophic austerity policies in the grip of a depression. And now the economy is reaping what they have sown, as Walmart’s customers are too tapped-out to buy even the company’s crappy Chinese imports.
It’s a perverse economic model — a reverse of Henry Ford’s maxim that you pay workers enough to afford the products they produce – and it may finally be reaching a point where its unsustainable nature is impossible to ignore.