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To: Skeeter Bug who wrote (267433)	8/9/2010 6:57:51 AM
From: Smiling Bob	Respond to of 306849

U.S. Economy Is Increasingly Tied to the Rich by Robert Frank Sunday, August 1, 2010 Who cares how the rich spend their money? Well, perhaps everyone should these days. Consumer spending accounts for roughly two-thirds of U.S. gross domestic product, or the value of all goods and services produced in the nation. And spending by the rich now accounts for the largest share of consumer outlays in at least 20 years. According to new research from Moody's Analytics, the top 5% of Americans by income account for 37% of all consumer outlays. Outlays include consumer spending, interest payments on installment debt and transfer payments. By contrast, the bottom 80% by income account for 39.5% of all consumer outlays. It is no surprise, of course, that the rich spend so much, since they earn a disproportionate share of income. According to economists Emmanuel Saez and Thomas Piketty, the top 10% of earners captured about half of all income as of 2007. What is surprising is just how much or our consumer economy is now dependent on the rich, and how that share has increased as the U.S. emerges from recession. In the third quarter of 1990, the top 5% accounted for 25% of consumer outlays. That held relatively steady until the mid-1990s, when it started inching up past 30%. It dipped in 2003 and again in 2008, but started surging in 2009 amid the greatest bull market rally in history, with the Dow Jones Industry Average rising nearly 50% in the last nine months of the year. Mark Zandi, chief economist for Moody's Analytics, cites two main reasons for the increase. First, the wealthy panicked during the financial crisis and stopped spending. When markets rebounded, they came out of their shells and started spending again. "I think that pent-up demand was unleashed," he said. "It was an unusually high rate of spending." [See 21 Things You Should Never Buy New ] The second reason is that those people in the middle- and lower-income groups are struggling to pay off debt and stay afloat amid rising unemployment, as Friday's data reminds us. That has crimped their spending. The data may be a further sign that the U.S. is becoming a Plutonomy–an economy dependent on the spending and investing of the wealthy. And Plutonomies are far less stable than economies built on more evenly distributed income and mass consumption. "I don't think it's healthy for the economy to be so dependent on the top 2% of the income distribution," Mr. Zandi said. He added that, "In the near term it highlights the fragility of the recovery." In fact, the recent spending of the wealthy may be unsustainable. Their savings rate has gone from more than 26% in 2008 to a negative 7% in the first quarter of 2010, according to the Moody's Analytics data. They still have lots of savings. But the massive draw on that in the past two years is unlikely to continue at the same pace. "I think we're already seeing a slowdown in spending by this group," Mr. Zandi says. And that should be a worry for all of u

To: Skeeter Bug who wrote (267433)	8/9/2010 9:09:00 AM
From: DebtBomb	Read Replies (3) \| Respond to of 306849

Robert Rubin Argues Against 'Major' Stimulus And For Deficit Reduction Bob Rubin, the former Clinton administration Treasury Secretary and routine foil for many progressive-minded economists, argued on Sunday against a second "major" stimulus to revive the economy. Appearing on CNN's "Fareed Zakaria GPS," Rubin said that the president would better be served focusing his efforts on the task of long-term deficit reduction. "I wouldn't do a major second stimulus because I think...we run a risk that it could be counterproductive in creating a lot of additional uncertainty and undermining confidence," Rubin said. "But at the same time -- and what I'm about to say is easy to say and very hard to do -- at the same time I would try over the next six months to put in place a very serious beginning of deficit reduction that would take effect at some specified time in the future. And I would guess something like two years. So it wouldn't take effect right now, when the economy is still so vulnerable, but if you could do it and it was credible and people believed it and it was real, I think that could do a lot for confidence. The problem is that's very easy to say and very hard to do." Praised for shepherding lengthy economic growth during the Clinton years only to be bemoaned, in retrospect, for ushering in the era of deregulation that contributed to the current crisis, Rubin has been a relatively quiet voice during the Obama administration. His main impact on economic policy has been through the various disciples that he has working in key administration posts. His pushback against a second major stimulus effort doesn't necessarily have practical political impacts. But it's a viewpoint that is shared by those figures who actually affect the president's decisions. Politics, of course, makes the debate over stimulus rather limited. Even if the White House wanted a major new spending package, Congress wouldn't write the check. Being a high-profile Democratic-affiliated figure, however, Rubin's comments hurt those arguing the case that more stimulus spending is needed. During his CNN appearance, the former Treasury Secretary did argue for some policy changes that will leave Democrats and progressives a bit more content. Asked what he would propose to help turn the ecnomy and the deficit around, Rubin replied: "I would put an estate tax in place right now, immediately, because we have no estate tax right now. There is no supply side effect in having an estate tax. And we should fill that void. Number two, I would increase the tax on the higher brackets, those top two brackets, and bring them back up to the Clinton rate. I believe there's no supply side effect there. We did it in 1993 people said we were going to destroy the economy, in fact we had the longest expansion...in American history. I would leave the middle-class tax cuts intact for a limited period because I do think that the probability is higher that we're going to have slow and bumpy growth than vigorous growth, and I think that given the vulnerability, the high unemployment rate, one thing and another, I wouldn't want to have that contractive effect right now." huffingtonpost.com