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Hullabaloo


Tuesday, February 04, 2014

 
When does the business community get fed up with supply-side failure?

by David Atkins

By now you've probably seen the Nelson Schwartz piece in the New York Times on the decline of businesses that serve the middle-class, while businesses serving the very rich and very poor are thriving like never before. If you haven't, go read the whole thing, but here's a taste:

As politicians and pundits in Washington continue to spar over whether economic inequality is in fact deepening, in corporate America there really is no debate at all. The post-recession reality is that the customer base for businesses that appeal to the middle class is shrinking as the top tier pulls even further away.

If there is any doubt, the speed at which companies are adapting to the new consumer landscape serves as very convincing evidence. Within top consulting firms and among Wall Street analysts, the shift is being described with a frankness more often associated with left-wing academics than business experts.

“Those consumers who have capital like real estate and stocks and are in the top 20 percent are feeling pretty good,” said John G. Maxwell, head of the global retail and consumer practice at PricewaterhouseCoopers.

In response to the upward shift in spending, PricewaterhouseCoopers clients like big stores and restaurants are chasing richer customers with a wider offering of high-end goods and services, or focusing on rock-bottom prices to attract the expanding ranks of penny-pinching consumers.

“As a retailer or restaurant chain, if you’re not at the really high level or the low level, that’s a tough place to be,” Mr. Maxwell said. “You don’t want to be stuck in the middle.”

Although data on consumption is less readily available than figures that show a comparable split in income gains, new research by the economists Steven Fazzari, of Washington University in St. Louis, and Barry Cynamon, of the Federal Reserve Bank of St. Louis, backs up what is already apparent in the marketplace.

In 2012, the top 5 percent of earners were responsible for 38 percent of domestic consumption, up from 28 percent in 1995, the researchers found.

Even more striking, the current recovery has been driven almost entirely by the upper crust, according to Mr. Fazzari and Mr. Cynamon. Since 2009, the year the recession ended, inflation-adjusted spending by this top echelon has risen 17 percent, compared with just 1 percent among the bottom 95 percent.
Now, we already know that the plutocrats at the very, very top of the food chain are a stateless superclass that doesn't care about the health of the American economy in general as long as their assets continue to grow. It doesn't matter to them if middle-class business fails so long as world GDP grows so their multinational business does well. But those jet setters don't define the broader business class in America, a huge portion of which doesn't sell luxury goods and does most of its sales domestically.

There are a lot of businessmen out there without golden parachutes waiting for them, workaday guys in suits making a solid low six-figure income that are dependent on the American middle-class consumer for them to continue with the lifestyles to which they have become accustomed. At what point do all of these medium-sized and large domestic firms decide that this trend constitutes a real threat to their long-term bottom lines? At what point do they start deciding that it might be better to get rid of carried interest loopholes, boost minimum wages, increase the tax rate on every dollar earned over $250,000, and generally improve the health and stability of the American economy? Most of the folks making even $200,000 a year would barely notice the changes being advocated by mainstream Democrats, and wouldn't even take much of a haircut under the Progressive Congressional Caucus budgets.

At what point does the top 5% of America realize that its own future is being undermined and conned from them by the top tenth of one percent?

The top tenth of one percent doesn't care and isn't going to. But the top 10% should at least be able to see the handwriting on the wall and try to reverse course, shouldn't they?


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