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January 9, 2014
For the past five years, the market for luxury goods has been on a
roll, even as the rest of the economy sputtered. Fancy cars are flying
off the production lines. Tiffany and Prada are in the pink. Even Big
Tobacco is in on the action, doing brisk business
in high-end cigars. Consumer spending is up
! the latest headlines shout. Rejoice! But wait — if a big chunk
of this is driven by sales of luxury goods, is that ultimately a good thing for the economy?
the Great Recession, the U.S. has remained the world’s number-one
nation for luxury goods consumption. The 1 percent has never had such
fawning attention and splendiferous choices. The stock market returns of
2013 only served to further escalate the spending sprees of the
wealthy. That's great for them. But what about the rest of us?
Well, we don't really count, according to the banksters. If you'll recall, back in 2005, the number-crunchers over at Citigroup released a report
on the economy that made it all clear. The report announced that there
is "no such thing as the U.S. consumer." Notions like "average" consumer
and "average" debt were totally irrelevant. America, they explained,
actually consisted of two groups: the rich and everybody else. There was
no reason to worry about the second group, because what it did just
didn't matter much. The richest 1 percent made as much every year as the
bottom 60 percent combined. They called the group with all the power
"Economic growth is powered by and largedly
consumed by the wealthy few," the analysts said. Just like it was in the
Gilded Age and the Roaring Twenties. The idea was simple: the rich
alone can keep the economy humming. Who cared, in that case, about
income inequality? Thinking along those lines, many conservative
neoclassical economists over the years have argued that income
inequality is actually necessary for growth
because it puts money into the hands of capitalists who will do things
like create jobs and spend their money, which supposedly helps everyone
out eventually. Trickle-down economics, some call it.
government officials are tooting the consumer spending horn as the rich
are burning up their credit cards. But the rest of us are still cutting back on many things
Socked with high, out-of-pocket healthcare expenses, job insecurity,
and disappearing pensions, the middle class has less disposable income.
Instead of taking trips, we're taking staycations. We're not spending as
much on electronics or new cars. At the lower rungs of the economic
ladder, workers are stuck in low-wage hell and struggle merely to
Meanwhile, just as in the Gilded Age and the Roaring
Twenties, the richer the rich become, the less they believe is expected
of them, and the louder they cry out against paying their share of taxes
and call for budget cuts even as the federal deficit continues to shrink
(according to the Congressional Budget Office, the government actually ran a $44 billion surplus in December
). The rich push policies that only increase income inequality.
If the Citigroup folks were right, then the rich need not worry. The economy will be okay.
But maybe the Citigroup folks were wrong.
Economists who do not subscribe to conservative neoclassical theories are beginning to do research
on how income distribution impacts economic growth over the long run.
The subject is controversial at this point, and tricky because it's hard
to get empirical evidence. But it looks like there could be some
problems with the Citigroup theory, particularly as it relates to
consumer spending. The rich have contraints on their spending, for one
thing. There are only so many Prada bags, cars and fancy cigars one can
buy. So if you can't spend it all, what do you do with it? You might
just end up saving most of it, which doesn't help the rest of the
economy, and might be bad for it in the long run. There are other
problems, too. Some of the rich will use the excess money they can't
figure out how to spend on speculation, which can destabilize the
Long-term economic growth isn't the only reason we should
be worried about income inequality. There are many problems, like
social unrest, health crises and the breakdown of democratic
institutions that result from the rich and the rest being separated by a
wide gulf. But the damage to the economy is something even the rich
might stop and think about. They may find that income inequality will
eventually come back to bite them in the long run — right in the
Lynn Parramore is an
AlterNet senior editor. She is cofounder of Recessionwire, founding
editor of New Deal 2.0, and author of 'Reading the Sphinx: Ancient Egypt
in Nineteenth-Century Literary Culture.' She received her Ph.d in
English and Cultural Theory from NYU, where she has taught essay writing
and semiotics. She is the Director of AlterNet's New Economic Dialogue
Project. Follow her on Twitter @LynnParramore.
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