The Rich Have Stopped Spending And That Has Tanked The Economy

[TwoCitiesCapital]

 

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 trickle be up.

 

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

 

No doubt! That's my concern though - when the benefits end, so does the spending. Everyone is so excited about the increase in consumer spending we had in May, but of course you had an uptick in a month where every American making less than $90k received $1,200+ check and the 15 of the 20 million unemployed received a raise due to the extra $600/week. But $1,200 checks don't go out every month and, if not extended, the $600/week ends next month too.

 

The propensity to spend is greatest amongst the people who were given money to spend AND spending is what happened - a big uptick month-over-month retail sales ( a proxy for consumer spending), but still dramatically lower than pre-Covid levels and still recessionary despite all of the stimulus. So what happens when the gov't shuts the spigot of cash?

[meiroy]

 

 

Well, let's hope they don't, or at least go ahead with the massive infrastructure projects.

 

In addition, some of this trickle-up surely had some positive impact on small businesses which would then support households, and so on.

 

 

 

 

 

[valueinvestor]

Also very anecdotal - anyone notice luxury watches prices? Recently stainless steel professional rolexes have been sold above MSRP in the grey markets, including Patek Philippe’s stainless steel sport watches too. So far prices have not come down, maybe it’s because of supply, but I thought the scalpers would sell for a need of cash.

[meiroy]

https://nymag.com/intelligencer/2020/06/how-inequality-is-deepening-the-coronavirus-recession.html#comments

 

A good read.

 

 

"But the gross inequities of the modern U.S. economy have deepened the COVID-19 recession. If more of America’s economic activity were geared toward meeting the needs of the median worker — and less toward serving the whims of the typical banker — then the pandemic-induced collapse in high-end consumption would have brought fewer jobs down with it. Meanwhile, if wages had kept pace with productivity gains over the past half-century, America would have entered this crisis with a larger economy and less financially vulnerable working class.

 

In ordinary times, our nation’s overreliance on the investment and consumption of the fickle rich depresses growth and corrodes democracy. In this extraordinary time, it is directly immiserating millions. We can and should build a better economy, one that keeps workers afloat in all seasons — no matter how choppy the waters or low the tide."

[scorpioncapital]

There is great inequality in EU too. Depending where you are. Some countries have decided to tax labour 90% and capital 10%, actually 10% is generous, some have no capital gains tax and sub 15% flat passive income taxes.

[Spekulatius]

 

 

Well, let's hope they don't, or at least go ahead with the massive infrastructure projects.

 

In addition, some of this trickle-up surely had some positive impact on small businesses which would then support households, and so on.

 

I think the burn rate on stimulus is currently $1T every 5 weeks or so. A $1T infrastructure bill that takes years to work off is in monthly terms so much less that it hardly makes up for CARES. It’s still a good idea, but it will hardly make a dent except in certain industries.

[meiroy]

 

 

Well, let's hope they don't, or at least go ahead with the massive infrastructure projects.

 

In addition, some of this trickle-up surely had some positive impact on small businesses which would then support households, and so on.

 

I think the burn rate on stimulus is currently $1T every 5 weeks or so. A $1T infrastructure bill that takes years to work off is in monthly terms so much less that it hardly makes up for CARES. It’s still a good idea, but it will hardly make a dent except in certain industries.

 

When there is a real economic need for certain infrastructure, then the new inf. or improved inf. will have a positive economic impact beyond those (companies/individuals) that received the money to construct it.  As far as numbers go, that's the big question, how far will they go... something is better than nothing.  If it bothers people so much that "people get money for nothing", you can always have people dig ditches then fill 'em back up ;) (edit: apparently it's holes, not ditches. sounds better. too)

 

 

edit 2:

https://econ.economicshelp.org/2008/07/john-maynard-keynes-great-economists.html#:~:text=Keynes%20described%20this%20as%20economic,and%20actively%20stimulate%20the%20economy.&text=%22The%20government%20should%20pay%20people,and%20then%20fill%20them%20up.%22

 

"Keynes and Great Depression

It was during the 1930s, that Keynes' really made his mark as an economist, helping to develop a whole new branch of Economics.

 

When the Great Depression hit, with unprecedented ferocity, economists were at a loss to explain its causes and how to overcome it. Prevailing economic orthodoxy stuck to the old classical view that Markets will clear in the long run. At the height of the crisis, the fledgling Labour government was told by Treasury officials that the government must balance the budget to survive the depression. This effectively meant increasing taxes and cutting unemployment benefits. Keynes described this as economic madness and argued for the exact opposite. He argued in a recession of this magnitude, it was necessary for the government to intervene and actively stimulate the economy. Apart from a few half hearted attempts such as the new deal, Keynes' policies were largely ignored in the UK and US; and high levels of unemployment persisted until the start of the second world war."

 

 

 

 

 

 

[SHDL]

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.

 

https://www.fox5ny.com/news/new-stimulus-package-could-include-4000-vacation-credit