Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
Stock Market Predictive Modeling Is Calling For A Continued Rally - 22nd Apr 18
SWEATCOIN - Get PAID to WALK! Incentive to Burn Fat and Lose Weight - Review - 22nd Apr 18
Sheffield Local Elections 2018 Forecast Results - 22nd Apr 18
How Long Does it take for a 10%+ Stock Market Correction to Make New Highs - 21st Apr 18
Sheffield Ruling Labour Party Could Lose 10 Council Seats at May Local Elections - 21st Apr 18
Crude Oil Price Trend Forecast - Saudi Arabia $80 ARAMCO Stock IPO Target - 21st Apr 18
Gold Price Nearing Bull Market Breakout, Stocks to Follow - 20th Apr 18
What’s Bitcoin Really Worth? - 20th Apr 18
Stock Market May "Let Go" - 20th Apr 18
Overwhelming Evidence Against Near Stock Market Grand Supercycle Top - 20th Apr 18
Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - 20th Apr 18
The Incredible Silver Trade – What You Need to Know - 20th Apr 18
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

Why the 98% Matter to the U.S. Economy

Economics / US Economy Dec 08, 2012 - 06:58 AM GMT

By: InvestmentContrarian

Economics

George Leong: President Obama is on a fiscal cliff campaign to show why middle-class America really needs the help. Of course, Republicans want the Bush-era tax cuts to also apply to the top two percent of income earners. This is the major sticking point holding up a deal.


I love capitalism and the idea that you can generate unlimited wealth to drive consumer spending. This is the reason why the United States is one of the richest countries in the world, with its gross domestic product (GDP) growth driven by consumer spending. Yet despite the ability to create wealth, the income gap between the rich and poor has been widening, which ultimately impacts consumer spending. In my view, this is an issue that needs to be addressed, as there is a societal need to help the less fortunate. Of course, paying higher taxes is a form of income distribution, but given the tax loopholes, the current system of taxes as an avenue for income distribution may need to be fixed.

This concept of income distribution in America and other industrialized countries is becoming a real problem, especially with the Great Recession that began in 2008. Lower income levels impact consumer spending and economic growth.

The median family income plummeted to an inflation-adjusted $45,800 in 2010 compared to $49,600 in 2007, according to the Survey of Consumer Finances, a publication of the Federal Reserve. The survey also indicated that the top 10% of households made an average of $349,000 in 2010 and had a net worth of $2.9 million. This translates into less consumer spending by the middle class as income levels fade.

What is worrisome is that the recession resulted in a greater disparity in incomes between the poor and the rich. It’s common for the CEO of a large company to earn multiples of a regular worker’s income. But according to the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), in 2011, the average S&P 500 CEO earned $12.9 million; that’s 380 times higher than the average income of a worker in the U.S., which was $33,947.

In America, the rich are getting richer while the poor are getting poorer, which is impacting consumer spending.

With more than 30 million Americans using some form of food stamps, which also affects consumer spending, there is a great disparity of income in this country. The same is true in countries like Brazil, Russia, and Venezuela among others.

The income gap is widening. In 1962, the top one percent of income earners had a net worth of 125 times the median household, according to the Economic Policy Institute. The income gap surged to 288 times the median household in 2010, and it’s getting worse. This means less consumer spending from the middle class. President Obama realizes this and wants to remedy the situation. Of course, the gap will continue to be significant, as the rich have a much larger base of wealth to work from and can accelerate the growth of their net worth much quicker. Making two percent on $10.0 million is a lot better than earning two percent on $1,000.

Whatever your views on income distribution, and there will be some that feel the current tax structure is correct, the problem is that income disparity inevitably causes societal issues; in the long run, this cannot be good for America, as it impacts consumer spending.

Source: http://www.investmentcontrarians.com/recession/why-the-98-matter-in-the-u-s-economy/1104/

By George Leong, BA, B. Comm.
www.investmentcontrarians.com

Investment Contrarians is our daily financial e-letter dedicated to helping investors make money by going against the “herd mentality.”

Copyright © 2012 Investment Contrarians- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules