By Emily Schwartz Greco and William A Collins / OtherWords
For the first time since 1997, the U.S. economy just added at least 200,000 jobs per month for six months running. GDP grew at a 4 percent annual clip between April and June. The percentage of Americans who describe the economy as “good” has climbed to the highest level of President Barack Obama’s presidency.
Who wouldn’t rejoice over these happy milestones on the bumpy road to a real recovery?
Wall Street. On July 31, within hours of the release of a bunch of sunny indicators, stocks sank more than they had on any day since early February. The decline wiped out all gains the S&P 500 stock index had racked up over the month.
Global instability contributed to the sharp drop, but so did investors’ fretting over indications that workers are finally getting higher wages and more benefits.
And why exactly does Wall Street tank on news portending economic gains for most Americans? Don’t people with extra money in their pockets boost the economy when they spend more freely? Isn’t it something worth celebrating?
Not in an economy that caters to the rich.
You see, there are practical implications of the chasm between rich and poor for the conduct of commerce. For several years, retailers have increasingly doted on the affluent, the most alluring segment of the $10 trillion consumer spending market.
Consider how U.S. households differ. The richest 20 percent of Americans now pocket more than half of the nation’s income. The typical income for this kind of family tops $150,000, triple the norm for all of us. Together, these “high-value customers” (to borrow a phrase from LuxuryDaily.com) account for about 40 percent of all U.S. spending.
And the cost of real luxury has gotten a divorce from reality. A quilted Chanel handbag canset you back $4,900. An ultra-thin Piaget Altiplano watch could siphon 95 grand from your wallet.
There’s still some money made from selling cheap stuff to the poor and working class. That’s why the four biggest U.S. retailers are big-box behemoths Wal-Mart, Costco, and Target, along with the Kroger supermarket chain. Even the very bottom of the food chain, the people whose households eke by on $30,000 or less a year, account for a stagnant yet sizable $1 trillion bare-bones consumption market.
For them, dollar stores can be a bigger draw than the big boxes. They’re in a bind and so are the companies relying on their purchases.
“Customers are under pressure,” Dollar Tree Chief Executive Bob Sasser told The Wall Street Journal. “Unfortunately, that’s one reason why the space continues to grow.”
In a telling sign of today’s increasingly unequal times, Dollar Tree is merging with Family Dollar Stores. The No. 2 and No. 3 companies in this cut-throat market want to team up to compete with their No. 1 competitor, Dollar General. Together, they’ll fend off bids by Wal-Mart and its ilk to gobble up some of their territory with new smaller-box establishments.
Clearly, times are tough for retailers opting to sell stuff to the rest of us. But they’ve got it figured out for the most part and Wall Street worships predictability.
Think of all the economic models and assumptions that would be shattered if the drive toward wealth concentration were to take a detour toward shared prosperity.
Of course, financial experts won’t say these things out loud. Instead, they’ll mutter about inflation and freak out over signs that labor markets are growing tighter. Are those really big concerns in light of this protracted war on consumers?
If you would like to know more about how and why the rich are getting so much richer while the poor become steadily poorer (and you enjoy very long reads), check out Thomas Piketty’s 700-page masterpiece. In his wildly successful book Capital in the Twenty-first Century, the French economist has finally organized and footnoted every lost battle in this tale of class warfare.
Winning the debate, of course, isn’t enough. Until more U.S. political and business leaders decide they’ve had enough, this nation will become less of a democracy governed by the people and more of a plutocracy ruled by the rich.
Originally posted at OtherWords.Org.
Emily Schwartz Greco is the managing editor of OtherWords, a non-profit national editorial service run by the Institute for Policy Studies. OtherWords columnist William A. Collins is a former state representative and a former mayor of Norwalk, Connecticut.
Somehow I never really thought of COSTCO as targeting the poor considering everyone I know who belongs to it are fairly affluent white collar professionals. Even the Kroger chain (who owns Ralphs) specifically targets the poor?
bob dorn says
I sorta wish the mechanisms which make this “an economy that caters to the rich” were made clear.
Picketty, in his book, and other economists are saying that the tax breaks, subsidies and other gifts to the rich and the corporate world, like enormous CEO salaries, have produced a huge excess of cash in the hands of ever fewer people.
Some of that gold is basically sitting idle; it’s being used by one corporation to buy out another, leading to the near-monopolization of airlines, toothpaste, restaurants and all other services and items ordinary people want to spend money on. Other mountains of cash are in short-and mid-term bonds, treasury bills, and, of course the stock market, which is a bubble. In all these examples of excess wealth (there are lots of others) money does nothing. It doesn’t expand the economy and hire people. No additional goods are made. Nothing of value is added to the economy, and the scarcity of money at the lower levels of the economy prevents people from buying, or narrows the newly poor to buying off the shelves of big boxes.
It would be helpful for people like me to see a movement that holds Republican and Democratic feet to the fire on the issue of, not just job creation, but the creation of small business opportunities and breaks for them. Both parties invoke the holy sentiment that they are all for small businesses, but their candidates are being elected by catering to the voracious appetites of the corporate world.
I think the authors’ assertion that the “economy caters to the rich” refers to the general economic mechanisms described in the article, epitomized by Wall Street and the banking industry.
I also think it’s still true that lower economic class people spend more of their funds than rich folk do. That’s why those four retailers are so large while Chanel and Piaget are not.
John Lawrence says
Since the GDP is 70% consumption, it would be interesting to see a study as to what percentage of consumption is by the rich and what percentage is attributable to the rest of us. I would guess that perhaps 30% of that 70% is by 10 % of the population.
bob dorn says
If that who-consumes-what study were to include the cash purchases of, say, trophy homes (San Diego is a popular hobbyhome market), or the buyouts of whole businesses by independent, wholly-owned businesses, I think that the majority of consumption would be owed to the top 5 percent of Merkans. That’s just an article of faith for me, though, based on the lack of money I see down here on the ground.