The richest one-fifth of Americans have not only enjoyed most of the income gains since the recession, they powered nearly half of the increase in consumer spending, the Labor Department reported Tuesday.
Spending by consumers of all incomes typically fuels two-thirds or more of economic growth in the U.S. But middle-class and lower income households have faced average wage increases of less than 2 percent since 2009 while corporate executives, well-to-do investors, highly paid professionals and others in the top brackets have been enjoying robust income gains.
Although the wealthy save and park offshore a large proportion of their stock market and income gains, the most affluent Americans managed to go on an unprecedented spending spree in the last four years while most everyone else was scraping by.
Wealthy purchases of cars, homes, yachts and other basics and luxuries accounted for 49 percent of U.S. consumer spending between 2009 and 2013, up from rates under 40 percent in previous decades, according to the Bureau of Labor Statistics.
The discrepancy was so great that last year, consumer spending by the average American household actually declined by 0.7 percent to $51,100, despite heady times in the penthouses and executive suites, the department said.
“Solid spending increases among the top income earners have masked struggles for large parts of the population,” said Harm Bandholz, economist at Unicredit Research.
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Ironically, the Federal Reserve’s loose money policies — while aimed at helping the middle class by sparking stronger economic growth — actually have accentuated the disparity, helping the wealthy disproportionately by sparking the strong gains in the stock market since 2009. Stock gains account for all or most of the income of corporate executives and independently wealthy people.
“Today’s report shows the limits of monetary policy,” Mr. Bandholz said. “While it can lift asset prices, and — to a certain extent — support economic growth, there is no way that it can fight income inequality. If anything, it increases it.”
Congress and President Obama could do more to narrow the growing disparity between middle- and upper-class incomes by promoting better education and training of middle-class workers, and by making the U.S. more attractive for global corporations offering middle-class jobs, but gridlock between the parties has prevented action, the analyst said.
“Unfortunately, the prospects for structural reform in Washington are more than bleak,” Mr. Bandholz said.
While the well-off have managed to keep the U.S. economy growing steadily through their hearty spending, economists increasingly blame surging inequality and the paralysis of the middle class for today’s tepid rates of growth of 2 percent on average.
The International Monetary Fund recently found that growing income disparity in the U.S. and elsewhere is leading to anemic growth and other economic problems, ranging from high levels of middle-class debt to financial instability and the loss of upward mobility between income classes.
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“Economic performance has been anything but spectacular. Why? At least in part because of rising inequality, shifting income from those with low propensity to save to those with a high propensity to save,” wrote a group of Dutch professors on the Seeking Alpha web site.
The professors noted that income not only has shifted from the middle class to the wealthiest fifth of the population, but to corporations, which are enjoying brimming profits thanks to the modest wage increases and the boom in the stock market.
Both the wealthy and corporations, moreover, have been shifting large portions of the cash income that they don’t spend into offshore tax havens, to avoid having to pay taxes, the professors noted.