Various airheads have cited the recent surge in consumer spending as proof the economy is on the mend. But there are two economies, one for wealthy or well-off, and another for the rest of the people. Any time some one refers to "the economy" as doing well or not—as measured by GDP—you need to keep this distinction in mind.
Some recent polling data by Gallup, along with their interpretation of the data, is very illuminating in this regard. Gallup put the dividing line between the two economies at $90,000 in annual income.
You can easily see that Middle- and Lower-Income spending has not budged since January, 2009. But Upper-Income spending, which is almost always over 200% of spending by the less affluent, surged in the latter part of 2009, fell off during the winter, and recently rebounded in April & May. Here is how Gallup interpreted their data—
Overall consumer spending increased 14% in May, driven entirely by the surge in upper-income spending. As a result, Gallup's May spending results seem consistent with reports from the lower- and middle-income retailers that consumer spending did not continue to improve last month. While spending was up overall in May, the flat spending numbers over the past three months among consumers earning less than $90,000 a year means weak sales for the retailers that serve them...
At the same time, May's spending illustrates that many upper-income consumers have the disposable income to increase their daily spending if they so desire... It could be that many upper-income consumers are experiencing "frugality fatigue." That is, they are simply tired of cutting back and want to go back to spending -- maybe not as freely as they did prior to the recession, but at higher levels than they did last year, when frugality was commonplace. They may also be spending more freely because as recently as a month ago, many economic observers were talking about the financial crisis' being over and a sharp economic upturn taking place. Or, they may simply have decided that it is finally time to take a long-delayed vacation.
A sharp increase in upper-income Americans' spending is terrific news for the U.S. economy. These Americans generally have the wherewithal to spend, and when they do so, they generate consumer demand across the economy. In turn, this produces what the U.S. economy needs the most: a sharp and sustained increase in private sector jobs.
There is a blind spot here big enough to drive a truck through. Based on income inequality data provided by Emmanuel Saez, I'm guessing that roughly 15% of Americans make at least $90,000 a year. (In 2007, the top 10% of wage earners made at least $109,600.) Taking this further, 20% of Americans control 80% of the country's wealth according to G. William Domhoff's wealth inequality data.
So according to the standard story, we Middle- and Lower income people must wait around and hope the rich (or well-off) will get over their frugality fatigue. If the affluent start spending money again, this will create a host of private sector jobs. No doubt many of these table scraps will be lousy jobs in the retail or service sector, but a shitty job is better than no job at all, right? Thus Gallup says it is "terrific news" for "the economy" if the wealthy open up the purse strings.
In the 1980s, this view of how things work was called Trickle Down Economics. The only thing that has changed since then is that fewer & fewer of the people control more & more of the wealth. Thus we have modern day wage slaves. Pleaz massa', you be da' man sah, pleaz spend dat money so I steady workin' den be feedin da' chillun. All we lack now are Cotton Plantations for these slaves to work on, or perhaps you should think of Wal-Mart or Shenaniganz as the modern-day equivalent.
Ain't gonna be no bacon on the salad, Massa...
The co-opted brown noser Daniel Indiviglio (of The Atlantic) cited the Gallup results. Naturally, he came to exactly the same conclusion Gallup did. This is from At Least The Rich Are Spending—
... Wealthier Americans have more disposable income to spend since, well, they're wealthier. Tired of holding back for so long and sensing that the worst is behind the U.S. economy, they're more comfortable opening up their wallets. Low- and middle-income consumers, however, do not have as much extra disposable income to increase their spending. But they could spend a little more if they wanted. So we might see the rich feeling more confident than other Americans that their jobs and wealth are reasonably safe at this time.
No kidding! It's a good thing rich Americans are feeling confident & safe, because we certainly need them now more than ever before—
From an economic standpoint, any increase in spending is a good thing -- no matter where it comes from. Since consumer expenditures make up some 70% of the U.S. economy, spending must rise before businesses will ramp up hiring. At this point, however, it looks like any growth that might result from this new spending will have to rely on the "trickle-down" effect, until low- to middle-income Americans join the wealthy in relaxing their frugality.
Until low- to middle Americans join the wealthy in relaxing their frugality? And how would that happen? And when? Many of them live paycheck to paycheck, or they're underemployed, or they're on food stamps, or all of these. All that housing equity wealth they thought they had during the Bubble is gone.
And FYI, the Commerce Department just reported that retail sales fell 1.2% in May, the first decline since September, 2009. But at least the rich are spending, which probably means the not-so-rich are cutting back.
Maybe the rich will open up their wallets and throw you a bone. Or maybe those table scraps won't be forthcoming. The standard story says your job prospects and ultimately your well-being depend on it. What would we do without the rich? We can't live without them!
The standard story rationalizes outrageous income & wealth inequality in the United States. The use of GDP to describe "the economy" effectively hides this ongoing social disaster, and has no precedent in the 20th century. Welcome to our "trickle-down" world.