Hey, Big Spenders

[regfootball]

what he is suggesting really pisses me off, and it shouldn't be this way, but even the writer I think is a bit astounded at making the point he makes.....

http://www.msnbc.msn.com/id/20642831/site/...week/?GT1=10357

Dan Gross: Will the Rich Save the Economy?

Will the rich save the economy?

WEB-EXCLUSIVE COMMENTARY

By Daniel Gross

Newsweek

Updated: 12:32 p.m. CT Sept 7, 2007

Sept. 7, 2007 - For the last several years, personal consumption has accounted for about 70 percent of gross domestic product. This decade, Americans' preternatural ability to spend has rested on the following legs: 1) the strong housing market, which allowed people to tap into home equity; 2) cheap and plentiful credit for people at every rung of the economic ladder; and 3) job growth.

As the first two legs were sawed off earlier this year, economists argued that so long as Americans had jobs and steady incomes, they'd spend and keep the economy humming. Friday morning's disappointing employment report, which shows that the economy lost payroll jobs in July for the first time in four years, indicates that a beaver is gnawing through the last leg.

So, should we fear an impending collapse in consumer spending? Recent sales figures from retailers like Wal-Mart, J.C. Penney, Dollar General, and Sears have been less than encouraging. But the huge mass retailers may not be the best indicators of overall spending. Instead, we should probably focus on the what the rich are doing. After all, the high and mighty account for a hugely disproportionate chunk of consumer activity. As Citigroup equity strategist Tobias Levkovich noted in a recent report: "The top 20 percent of American income earners spend more in a given year than the bottom three quintiles combined. Thus, they have far more influence on economic direction." Levkovich points us to the Consumer Expenditure Survey data on quintiles, which indeed shows that in 2005, the average family in the top 20 percent spent $90,469 on consumer expenditures. The average families in the bottom three quintiles spent a combined $87,139.

And how are the rich doing? Quite well, thank you. Median income has been stagnant lo these many years, as the Census Bureau reported last month, and it is still below the level of 1999. But as David Cay Johnston reported (article purchase required) in the New York Times last month, people making more than $1 million "reaped almost 47 percent of the total income gains in 2005, compared with 2000" and "received 62 percent of the savings from the reduced tax rates on long-term capital gains and dividends that President Bush signed into law in 2003." Jonathan Chait's excellent new book, The Big Con, smartly argues that such outcomes are the intentional results of economic policies designed to redistribute income upward. (Few members of the Bush economic team will cop to the intent.)

In theory, the rich, and the ultra-rich, are subject to some of the same economic woes that trouble the middle class: the slumping housing market, the rising cost of credit, and job insecurity. But they aren't showing many signs of stress. Some hedge funds have imploded, and a few investment bankers have lost their jobs, but financial-services job losses have thus far been contained to the rank-and-file employees of subprime lenders. Bonuses at Wall Street may be down this year, but many investment bankers are clearly still spending last year's haul.

At Saks, same-store sales in August were up a stunning 18.2 percent; at Tiffany, same-store U.S. sales rose 17 percent in the second quarter. Indeed, luxury retailers are in an expansive mood. The Wall Street Journal reported earlier this week (subscription required) that "this year, some 30 high-end retailers have opened boutiques in Austin [Texas], including Tiffany & Co., Michael Kors, Ralph Lauren, David Yurman, Louis Vuitton and Burberry." These stores are located in a new mall anchored by Neiman Marcus, where same-store sales rose a healthy 4.6 percent in August. Among the strongest performers: "designer handbags, shoes, designer jewelry, women's fine apparel, and men's."

Nationwide, the housing sales market may be a bust. But the Journal reports (subscription required) Friday morning that while many California housing markets suffer, "[e]ye-popping sales are spreading along a 40-mile stretch of southern Santa Barbara County." In July, sales in the area, "the only region of California where the median sales prices surpassed $1 million," rose nearly 28 percent. Publicly held home builders that cater to middle-class buyers are faring poorly. But the very wealthy are still building. This 50,000-square-foot home under construction in West Hartford, Ct., is worth 20 starter homes—and probably more, given the amenities. Or take personal transport. While auto sales are down, "the market for private jets is stronger than it has ever been," said Richard Aboulafia, analyst at the Teal Group. Economically speaking, a Gulfstream G550, which is made in the United States and goes for $48 million, is worth the equivalent of 3,200 Ford Focus coupes, which go for about $15,000 each.

Given the top-heaviness of the economy, one could make the case—one could, but I'm not—that the continuing upward redistribution of income is good for the economy and good for all of us. As they earn more, and keep more of their income, the rich and the very rich spend more, thus keeping the growing number of residents of Richistan gainfully employed. The fact that the rich are getting richer is one of the reasons that federal tax revenues—which are much less progressive than they were in 2000 but still somewhat progressive—are growing so smartly, up 7.4 percent year over year. Today, analysts are likely sifting through the jobs report and ratcheting down their forecasts for the Christmas season. It may well turn out to be a glum one for many retailers. But as long as the lights are on in the mansion on the top of the hill, the growing number of stores and businesses that cater to their residents will be busy.

[regfootball]

in other words, we can justify its ok for like 10% of everyone to prosper, while the other 90% don't live comfortably.

the divide continues to grow. the middle and lower classes get squeezed.

Edited September 9, 2007 by regfootball

[Flybrian]

Rich folks don't hide their money in offshore shelters or anything shady like that at all; that's Ray-Ray pushing the rusty KMart shopping cart who does his banking in the Caymans. They totally pay every rightful cent of their taxes owed and spend their disposable income on American products. Yup. Definitely.

[CARBIZ]

Rich folks don't hide their money in offshore shelters or anything shady like that at all; that's Ray-Ray pushing the rusty KMart shopping cart who does his banking in the Caymans. They totally pay every rightful cent of their taxes owed and spend their disposable income on American products. Yup. Definitely.

Fly, what are you smoking, and please pass it around!

[Drew Dowdell]

My issue with this article is the assumption that the middle class didn't get into this predicament all on their own by trying to appear rich.

When to be "comfortable" one is required to have a 5-bedroom McMansion <for 2 adults, 2 kids>, 3 car garage, 2 luxury SUVs, boat, designer clothes, all starbucks all the time, multiple flat panel TVs, all financed to the absolute max....... it's really time to go over that priorities checklist again.

Edited September 9, 2007 by Oldsmoboi

[ZL-1]

The continuing upward redistribution of income is NOT good over the long run.

[Snate]

Talk about some faulty logic

[K.C.]

This logic has sort of a Dooooooyyyy Duhhhhhhh problem. The wealthy are not responsible for the good of the country. The politicians and all of the people in a democracy are responsible for themselves and contributing to the country in various ways all for the public good.

[daves87rs]

Well, let's hope it doesn't get to the point where the middle class have to kill for food.....

Though I have a feeling this is going to get nasty....

[regfootball]

Well, let's hope it doesn't get to the point where the middle class have to kill for food.....

Though I have a feeling this is going to get nasty....

where my parents live, there is much more crime these days. drugs, theft. my dad's theory is folks become stressed because of the economy and give up and resort to theft and stuff because it's damn near impossible for many to make an honest living anymore, so why try. folks can't live on 6 bucks an hour and pay 2% prop taxes, or 3.25 for gas or 4 bucks for a pound of average hamburger. or, 30 grand for vehicles.

so, i guess if i agree with that in general, then maybe we won't be far off from killing wach other for petty &#036;h&#33;.

i have wondered if it wouldn't be a good idea to get a way to impeach what's in there now and get a 'transitional president' in there for even half a year, so people's outlooks will change and we can get action started on righting the ship, before Jan 2009. it's obvious that if we have to wait until then, things are going to deteriorate to an extremely bad level for everyone below the rich people's mendoza line.

i wish the election was this november. you think &#036;h&#33; is bad now, next year is going to be terrible for the eocnomy. its only going to get worse.

[AxelTheRed]

There's another economic Depression on the way that will surpass the intensity of any of the others.

[mustang84]

The stock markets have been in such turmoil lately. They're comparing it to the big sell-off in '87 and saying it could get worse. Every week since July the market has been fluctuating wildly...up a lot, then down a lot more. It rebounded early last week only to drop like a rock by Friday.

[BigPontiac]

But the very wealthy are still building. This 50,000-square-foot home under construction in West Hartford, Ct., is worth 20 starter homes—and probably more, given the amenities.

While the cost of living in CT is pretty high, this particular house mentioned in the article is the exception -- even here! High And Mighty Mansion Rises Atop Avon Mountain

[ZL-1]

The stock markets have been in such turmoil lately. They're comparing it to the big sell-off in '87 and saying it could get worse. Every week since July the market has been fluctuating wildly...up a lot, then down a lot more. It rebounded early last week only to drop like a rock by Friday.

Volatility will continue for a while, but History shows that volatility is clustered and that volatility episodes tend to subside. I have attached a graph of the series of daily returns for the Dow Jones Industrial Average Index (January 1928 to February 2006) with high volatility circled in red. Edited September 10, 2007 by ZL-1