Income inequality in the United States is suppressing growth in aggregate demand (spending by households, businesses, and governments) by shifting an ever larger share of income to rich households that save rather than spend.
EPI estimates that rising inequality has slowed growth in aggregate demand by 2 to 4 percentage points of GDP annually in recent years.
For decades, the drag on demand growth stemming from rising inequality has been compensated for by other economic and policy developments—notably a long-running decline in interest rates.
So the wealthy save/invest. What do the corporations do with that largess. It seems they buy back their stock driving higher stock pricing rewarding the wealthy stockholders exacerbating the income inequality issue.
That was the stated intent of “supply side economics”. I heard supply side shills like Jack Kemp say that shifting all the loot to those who “save and invest” was the objective. Why is anyone surprised?
Ok, but still we hear many employers pay well above minimum wage to attract and keep workers. That seems to imply the wealth divide is narrowing at least on the low end.
US minimum wage is $7.25/hr. But few will work for that. Walmart, Target, Amazon routinely say $17 to $22/hr.
Top end may be rising faster but bottom end is participating. Are they keeping up with inflation?
Giving $1 Trillion to working-class and middle-class folks in benefits (e.g, child care, education, less corruption in health care, etc.) is going to do more to improve economic growth than another $1 Trillion tax cut for the wealthy.
And as that $1 Trillion benefit to working people is spent, the wealthy will end up with the profit anyway. They’ll just need to do a little work for it.
Will Rogers had a thought about that: giving money to the working people, vs giving it directly to those who already had the most. Words to the effect “if you give a dollar to a working man, the rich man will have it by the end of the day, but the working man would have gotten something out of it”.
So, why is the great sin of our times government spending, especially in terms of that thing people generally refer to as"welfare" and social safety net? Every penny of food stamps eventually gets to General Mills, ConAgra, et al. Every penny of rent assistance goes to some slum lord (respected local businessman) or big multi-family housing developer’s apartment complex. Why are rich people and businesses always against those things instead of actually advocating for them?
Because it is much more work for them to actually earn that money. They need to invest in physical assets, hire and pay employees, produce something of practical use. That is work. Much easier to use the government to tax the Proles, or borrow in the Proles’ name, and hand it directly to the “JCs”.
It’s not a great sin; it is just that there is, for whatever reasons, a tendency to spend more money than is collected. This situation works for awhile – until it doesn’t.
About 70% of the US economy is consumer spending. Big business realizes that they benefit from solvent and healthy consumers. I’ll guarantee you that Walmart doesn’t support cutting food stamps. Heck most of their employees are on food stamps if they have families.
The criticism of welfare and the social safety net is largely driven by conservative billionaires who have learned that they can get their “tax cuts and deregulation agenda” passed, if they can spin-up low information voters to vote against their economic interests.
In the sphere of economics an action, a habit, an institution or a law engenders not just one effect but a series of effects. Of these effects only the first is immediate; it is revealed simultaneously with its cause, it is seen. The others merely occur successively, they are not seen;3 we are lucky if we foresee them.
The entire difference between a bad and a good Economist is apparent here. A bad one relies on the visible effect while the good one takes account both of the effect one can see and of those one must foresee.
What Will Rogers is missing is that the “giving” does not happen automagically. There is a giving entity, charity or government, that has its own costs and expenses. Let’s see what else is being missed in this thread…
Spending clearly puts money in circulation and the quote suggests that saving does not.
Scrooge McDuck stops money from circulating but most savings keep money circulating.
Depositing the saving in a fractional reserve bank not only puts the money in circulation, it multiplies it
Investing the saving in a business also puts the money in circulation
Even treasuries put the money in circulation
Government is not free. Government is not run like a for profit business.
Even this quote misses that government is not free. The problem with government is that there is no owner, it is a commons and suffers The Tragedy of the Commons
The tragedy of the commons develops in this way. Picture a pasture open to all. It is to be expected that each herds- man will try to keep as many cattle as possible on the commons. Such an arrangement may work reasonably satisfactorily for centuries because tribal wars, poaching, and disease keep the numbers of both man and beast well below the carrying capacity of the land. Finally, however, comes the day of reckoning, that is, the day when the long-desired goal of social stability becomes a reality. At this point, the inherent logic of the commons remorselessly generates tragedy.
As a rational being, each herdsman seeks to maximize his gain. Explicitly or implicitly, more or less consciously, he asks, “What is the utility to me of adding one more animal to my herd?” This utility has one negative and one positive component.
There was some discussion, a number of years ago, of Walmart specifically telling it’s employees to sign up for food stamps and Medicaid, both because their pay was low enough for them to qualify, and it was cheaper for Walmart to have the government subsidize it’s payroll, than to offer decent pay and benefits, paid from it’s own pocket.
“JC” support for a Medicaid work requirement, trialed on the last go around, and said to be mandated nationally this time, would continue the government subsidy of private payrolls, while driving more people, seeking employment, to keep their medical coverage, into the arms of the “JCs”.
What is the difference between that $300 check I received in the mail, in the summer of 2020, and $300 given to a “JC” via a tax cut? They are both a loss of funds to the government.
And this would be a good meme for the “saving and investing” class that benefits from it’s surplus income being untaxed, while the Proles that spend all of their income pay high tariffs and sales taxes on every penny.
