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The Rich Have Stopped Spending And That Has Tanked The Economy


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https://www.npr.org/2020/06/17/878946307/the-rich-have-stopped-spending-and-thats-tanked-the-economy

 

In fact, so much of the country's economy depends on shopping by the top income bracket that the wealthiest 25% of Americans account for fully two-thirds of the total decline in spending since January.

 

They have a lot of discretionary income and before the pandemic were spending a significant chunk of that going to nice restaurants, the theater, or traveling and staying in nice hotels. Those are precisely the things that have been off-limits since the coronavirus hit.

 

That makes this very different from an ordinary recession, when spending on higher-touch services doesn't dry up so quickly. And those experiences are usually a lot more expensive than food and other essential items, which the rich and poor alike have continued to spend on, but also make up a smaller portion of upper-income household budgets.

 

Hendren and his colleagues found that businesses that deliver in-person services in wealthy neighborhoods have seen the biggest drop in sales and are struggling to recover, while a retail store or takeout restaurant in a poorer neighborhood might have seen some decline but is starting to come back now.

 

An interesting implication as the wealth inequality gap widens.

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Lot of money is just being diverted. What was going to vacation abroad, now going into house upgrades instead.

Tough if you're in the hospitality biz, life-saver if you're in construction.

 

Lot of executable vacation planning, going into longer, and bucket list trips. Travel primarily outside of NA.

3-month vs 6-week trip, to the exotic locales, for about the same price - and without the million tourists.

 

Parts of Europe (Greece, Spain, Portugal), are now strategically paying tourists to travel there, because that's their only business.

To compete against that, NA is going to have to pay its population to travel as well - Canada and the US included.

https://www.usatoday.com/story/travel/news/2020/06/13/despite-risks-greek-islands-keen-reopen-tourists/3182764001/

 

Could be a great winter in vacation land!

 

SD

 

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This sounds right. Discretionary spending at the very high end (like private jets and villa rentals) seems to be holding up quite well or even growing though.

 

I think my spending is going to be down 50% YoY or more this year.

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Y'all need to step it up!

;D

 

There should be executive order for all rich people to book a dinner, stay, golf package at Mar-a-Lago or do time. We should not have unpatriotic behavior of hiding in their mansions. Jawohl!

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Y'all need to step it up!

;D

 

There should be executive order for all rich people to book a dinner, stay, golf package at Mar-a-Lago or do time. We should not have unpatriotic behavior of hiding in their mansions. Jawohl!

 

I don’t know the current status but there was some chatter recently about making leisure travel expenses tax deductible for the year or something like that. Not kidding. :o

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Y'all need to step it up!

;D

 

There should be executive order for all rich people to book a dinner, stay, golf package at Mar-a-Lago or do time. We should not have unpatriotic behavior of hiding in their mansions. Jawohl!

 

I don’t know the current status but there was some chatter recently about making leisure travel expenses tax deductible for the year or something like that. Not kidding. :o

 

For people who are not scared to travel/etc., there might be some good travel opportunities around. ./shrug

Airfares and air travel though might not be very attractive, since airlines cut a lot of flights.

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Y'all need to step it up!

;D

 

There should be executive order for all rich people to book a dinner, stay, golf package at Mar-a-Lago or do time. We should not have unpatriotic behavior of hiding in their mansions. Jawohl!

 

I don’t know the current status but there was some chatter recently about making leisure travel expenses tax deductible for the year or something like that. Not kidding. :o

 

For people who are not scared to travel/etc., there might be some good travel opportunities around. ./shrug

Airfares and air travel though might not be very attractive, since airlines cut a lot of flights.

 

Chicago-Tampa flights are fully booked - albeit with social distancing seating.

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Sorry man, staying at the Four Seasons is where I draw the line. Rooms are still starting at a grand a night. So I don't know if they're hurting that bad.

 

Yeah, I haven't been looking at prices, but some anecdotal data seem to suggest that pricing is not great.

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Interesting to know how much of the reduction in spending is going into the stock market. Given the extent of the rally there must be some pretty nice wealth effects which should create a lot of pent up demand for entertainment and holidays in the future.

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Maybe this helps, maybe it doesn't but I was hoping to book a weekend getaway vacation to take advantage of this slow down in any way possible, but prices are still up there. Funny enough it seems rooms are not available, and the Fairmont Chateau Lake Louise still seems to have the same offering pre-pandemic, pricing is probably just 10% lower. I think since they have a lot of regulars, it is not unheard of families having reunions at places like these annually, so if the economy tanks, I don't think it's because the rich stopped spending. 

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Interesting to know how much of the reduction in spending is going into the stock market. Given the extent of the rally there must be some pretty nice wealth effects which should create a lot of pent up demand for entertainment and holidays in the future.

 

Somewhat anecdotal but a lot of folks seem to be following the playbook: save up now, put the cash in the market, get a nice return, then cash out and spend it on something nice once the pandemic is over.

 

It’s a good plan but there is one problem: it won’t work well if everyone tries to cash out at the same time.

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I think this is reflective of the actual spending situation in the country though, right?

 

The only people who aren't having their spending manipulated by the govt are the wealthy - they're not receiving $1,200 checks and they're not receiving $600/week in extra unemployment benefits.

 

And the wealthy, for the most part, probably are still employed and still making money AND STILL CUTTING BACK.

 

So what is the rest of the country going to do when the exceptional unemployment benefits end and $1,200 stop coming?

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Y'all need to step it up!

;D

 

There should be executive order for all rich people to book a dinner, stay, golf package at Mar-a-Lago or do time. We should not have unpatriotic behavior of hiding in their mansions. Jawohl!

 

I don’t know the current status but there was some chatter recently about making leisure travel expenses tax deductible for the year or something like that. Not kidding. :o

 

For people who are not scared to travel/etc., there might be some good travel opportunities around. ./shrug

Airfares and air travel though might not be very attractive, since airlines cut a lot of flights.

 

Chicago-Tampa flights are fully booked - albeit with social distancing seating.

 

Yeah, I was just listening someone in our social group saying they flew to/from Florida for $700 on JetBlue - when normally tickets are $130. (Not sure exactly where/to and timing of the flight).  ::) Maybe we should invest into airlines.  ::)

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Maybe this helps, maybe it doesn't but I was hoping to book a weekend getaway vacation to take advantage of this slow down in any way possible, but prices are still up there. Funny enough it seems rooms are not available, and the Fairmont Chateau Lake Louise still seems to have the same offering pre-pandemic, pricing is probably just 10% lower. I think since they have a lot of regulars, it is not unheard of families having reunions at places like these annually, so if the economy tanks, I don't think it's because the rich stopped spending.

 

This could be partly because some of the competitors are closed. Moraine Lake Lodge for instance won’t be taking overnight guests until August it seems.

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I think this is reflective of the actual spending situation in the country though, right?

 

The only people who aren't having their spending manipulated by the govt are the wealthy - they're not receiving $1,200 checks and they're not receiving $600/week in extra unemployment benefits.

 

And the wealthy, for the most part, probably are still employed and still making money AND STILL CUTTING BACK.

 

So what is the rest of the country going to do when the exceptional unemployment benefits end and $1,200 stop coming?

 

We will know by August.

 

The Spek family spends less too, mainly because there isn’t much to spent on for us and Mrs. Spek can’t get vacation currently and is working more than we’d like.

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The only people who aren't having their spending manipulated by the govt are the wealthy - they're not receiving $1,200 checks and they're not receiving $600/week in extra unemployment benefits.

 

And the wealthy, for the most part, probably are still employed and still making money AND STILL CUTTING BACK.

 

I got a $1,700 check, and I don't work anyhow.  My wife works and got only a $1,200 check.  That was a fun look she shot me when she realized this.

 

 

So what is the rest of the country going to do when the exceptional unemployment benefits end and $1,200 stop coming?

 

I think it's called the Employment Development Department in California that set up the rules that are allowing a lot of Californians to collect unemployment benefits simply because, and due to COVID, their child's daycare closed, and they cannot come in to work even though their employer wants them to. 

 

So they are reported by the state of California as 'unemployed':  Fired?  No.  Laid off?  No.  Unemployed?  Yes!

 

Who understands the unemployment number?  I find it to be a confusing number.

 

My wife works in HR at a large healthcare company and in some areas as high as 40% of the staff won't come in to work for this reason, and adding the $600 weekly check on top meant that they were paid better to stay at home 'unemployed'.  Now that schools and daycares are allowed to operate again, some have come back to work.  But school is out for the summer and many are still staying home, arguing that their daycares haven't reopened (and some never will).

 

To be clear, their employer has been begging them to come back to work.  They are instead enjoying time with their kids.

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I was wondering about this issue as well and being form Canada I realized that one issue never entered my mind that may complicate things for Americans.

 

While these people are being say "unemployed". Do they still get health insurance covered by their company? Because I think that would be a big issue for Americans.

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I was wondering about this issue as well and being form Canada I realized that one issue never entered my mind that may complicate things for Americans.

 

While these people are being say "unemployed". Do they still get health insurance covered by their company? Because I think that would be a big issue for Americans.

 

I didn't mention that.  These 'unemployed' people are still getting their health insurance covered by the company. 

 

Also, the company is paying them negative-PTO, and allowing them to accrue negative 40 hours every other week.  And they didn't put a limit on it. 

 

So this 'unemployed' person is:

1). collecting state unemployment benefit

2). collecting 50% of pay directly from the company (and accruing negative PTO to offset it)

3). still covered with employer's health insurance coverage

4). getting an additional $600 per week from the US government

 

And if they leave their job after all of this, the employer can only recover the negative PTO in small claims court, but with a $500 corporate attorney, it just won't be worth it.

 

Some of these employees who are doing this are staying home because they have a 17 yr old at home.  It isn't legal for the employer to ask!

 

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20% of the total 3,800 employees working in the clinics in her area are ‘unemployed’ in this manner.

 

More still are home on ‘disability’ because their doctor said that their pre-existing conditions put them at an elevated risk for Covid-19

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When someone who is quite rich gets an additional marginal dollar, it usually does not go into the real economy. It is easy to see why.

 

For someone who is poor or above that, any additional dollar of income will go straight into the real economy and benefit the real economy* They will buy food, or pay for rent, or pay for gas etc.

 

 

This means that when there's high inequality as there is now, there is a material negative impact on consumption and the economy.

 

Fundamental economists who are 100% supply-side, regardless of the circumstances would of course disagree with this but this is exactly why a fiscal policy which considers *the current economic circumstances* should benefit households/consumers.

 

In the current environment, trickle-down is not going to work in order to rebalance the economy. It has to be trickle up.

 

* in the current globalized world, this benefit might go to an external economy, as has been happening.

 

 

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