Why Rich Consumers Matter More

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As we learned in school, 2 + 2 + 2 = 6, while 5 +1 also = 6. So, six various ordinary roofing shingles are available at the market today. Three customers may each buy two to stop three leaky roofs, or one can buy five designer color shingles, leaving only one ordinary shingle for the remaining customer. The author seems to imply that since a customer can walk away with wow, five shingles, the economy must be better better served. Because of the distributive property, in one scenario, one roof remained leaky to rot out the interior, and in the other, all three roofs kept the interior dry, comfortable and preserved for future dwellers, preserving total asset value.
I wonder if the author has read the story about how the big bad wolf blows away economies invested in bling, fluff, bobbles, bubbles and whoopie, or an economy invested in every ninth grade kid who knows exactly what the distributive property in math is about and knows exactly when the shyster mortgage brokers and sumptuously bonused bankers are trapping him with deals that don't add up to what can be paid each and every single year over the following several years of family income distribution.
We have a choice here in styling an economy that still has serious long term consequences: preserve asset value for the future, or bling for this evening's drunken stupor.

Richard Patterson of OH 5:15AM December 23, 2009

Call me negative. Even the unemployed will eventually replace "necessary" worn out and broken items. I know. But, will I be spending more than necessary? No!
In the past, I would buy a replacement prior to its failure and a spare, but today, I might let it go until the discomfort factor prods me to buy, and not always then. I have multiple items of electronic waste stock piled which may never be repaired (need filters, rechargeable batteries, and other ills) or replaced. If I can't repair the item for small change or with my current repair holdings, it finds a shelf. I don't have a job, so I have plenty of time to do manual labor with a broom or shovel which prior, was done with a fancy gadget. During WWII, people did the same thing because they couldn't replace items due to material shortages. When and if employment improves, I still will move financially slow, replacing a nest egg before doing consumable spending. If I survive this debacle, I am one of the responsible minority that watch my borrowing. My safety cushion is growing ever thinner! Soup lines are forming. Even a generous 15% annual return on a $100K savings will eventually draw down the principal (trust the market with a nest egg?)!

Ubiquitous Quip of IN 10:44PM December 16, 2009

Due to the recent recession, it has been the loss of aspirational spenders that has really hurt sales, because aspirational spenders feel more need to show off material trophies, whereas gagillionaires are generally sort of comfortable with having wealth and may fore-go shopping trips to spend more on travel, instead (they already have the Armani suit filled closet, but maybe have not yet been to Istanbul).
This has been the biggest blow to consumer spending, along with the job losses, that aspirational spenders have less to spend on status objects.

Angie Koutrotsios of IL 4:25PM December 16, 2009

While it's clear that affluent consumers are responsible for more consumer spending in this largely consumer spending driven US economy, it is not at all good for America's long term success to have two tiers consisting of either rich or broke. The nation needs a strong middle class to truly be at its best.
During the Asian financial crisis in the 1990's, government reforms were more successfully brought about in the nations where there was a strong and well-educated middle class (peasants would clearly be lesser educated, let alone have any wealth with which to organize political fundraisers, obviously).
Therefore, while it makes good sense to have the very affluent as your client base, that alone is not going to sustain growth over the long term.
America needs to help the middle class and the small businesses, which employ so many more people, overall, than do large corporations (not knocking the big ones, because I work for a large organization, just making a point about how many more jobs are found at smaller firms).
The very wealthy may matter "more" right now, but long term, this nation will not survive a loss of the middle class.
Wake up Washington. Start "bailouts" for main street, not just Wall Street.

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Sara of FL 9:12AM December 10, 2009

Well, you're going to re-institute the old high income tax rates for high incomes----OR----you're not going to fix it at all. We need to go back to the 1950's in this regard. Prospects for doing so? Dim. You know why? Because America now has lotteries and every bubba in hick-land is convinced he's gonna win it sooner or later. That's why they still sell lots of tickets to poor people, and why you won't get the votes to properly tax large incomes. The CEO millions "earned" from laying other people off or the Wall Street billions earned (off you) from shorting and flash trading are scot free while federal deficits soar and the middle class slowly disappears. What a silly, silly nation we have become. Today, for our daily distraction, let's worry about party crashers at White House dinners.

Muser of NM 1:51PM December 09, 2009

Remember when the masses could not afford to buy anything? What are you talking, voodoo trickle down economics?

Al of CO 8:00AM December 09, 2009

Dr. Thomas J. Stanley is a professor who has studied the affluent population for years and has written numerous books about the spending habits of the rich. In his latest book "Stop Acting Rich: And Start Living Like A Real Millionnaire" he reiterates what he has learned about the rich. "Wealth in America is more often the result of hard work, diligent savings, and living below your means." So if Rick Newman thinks the rich are spending heavily and that's what is supporting this fledgling recovery he should read one of Dr. Stanley's books and he will realize they don't spend like the rest of us. so how could they be artificially propping up the economy?

Cory of MI 5:40PM December 07, 2009

The point is that when trillions of dollars are put back into the market, the money is received and spent by the rich first. Well duh. The bankers and financiers are the ones who make loans to the companies or other banks who make products for the consumer. They do so at artificially low interest rates generating a lot of business. The wealthy investors see companies are active again or that prices have reached a low and they get back into the market in a hurry. They get the money first, they spend it first. That's where the good stops.
Now when demand starts to rise for these goods, the prices will rise. Now, the wealthy had the luxury of buying goods and assets when they were less expensive, maybe even below cost. The next group's cost will be a bit more expensive yet. The next group's cost will be even more expensive. The last group to purchase will end up paying more than the first, even if prices were to stay exactly the same (they wouldn't). Why? Because a trillion dollars has entered the market devaluing the money supply. This means the rich will be able to pay for goods and assets with essentially monopoly money. This inflates the cost of goods and assets. By the time it gets down to the poor, the real worth of their dollar (their purchasing power) has dropped. The higher the cost of the good or asset, the larger the percentage drop in purchasing power.
What would actually be in the nation's interest is for the savings rates to start going up. People need to live within their means and save for hard times, that is what the middle class and poor learned during the bust. There is a mixed message though. The artificially low interest rates indicate to consumers that business is booming and they should be spending. It also tells businesses that consumers are looking to spend, otherwise more money would be in secure assets shown by higher interest rates. So they take on additional research and development and other projects. It also makes it hard for the poor and middle class to save because they are simultaneously getting next to nothing on their money as well as the cost of goods is going up due to a devaluation of their dollar.

Ryan E. of IL 10:37AM December 05, 2009

One more time the Reagan economic theory is put forth. It was and is still a load of bunk. Whether the money is spent by the bottom or the top, the amount is the same and has the same impact on the consumer spending numbers. One more time the rich try to justify their over compensation. If the money used to bailout AIG had instead been used to fund micro businesses, the impact on the economy would have been almost immediate. (Assuming the government could figure out a way to timely dole out the money.) Those at the bottom cannot afford to hoard money and must spend it to survive. And they spend it locally not in some offshore resort or on some non-US venture.

tim lynch of OH 12:43PM December 04, 2009