Tags: spending | wealthy | Bernanke | Fed

Fiscal Times: The Wealthy are Keeping Their Purse Strings Tight

By    |   Wednesday, 23 April 2014 01:59 PM

Income inequality is bad for the U.S. economy because the richest Americans don't feel the need to spend a high percentage of their money, and the less prosperous don't have the ability to spend more, according to The Fiscal Times.

The Times cited data from the Bureau of Labor Statistics that showed between 2008 and 2012, the highest income quintile of the U.S. population increased its overall spending by about $2,300 annually, hardly enough to drive a resurging economic boom. BLS data showed the least wealthy quintile actually reduced their spending by about $150 annually during the same period.

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The BLS study also showed between 2004 and 2012, the total income of households that earned more than $150,000 rose 9 percent, while the total income of households that earned less than $30,000, about 33 percent of the U.S. population, shrank by 1 percent.

“What many people don’t grasp is that when high-income households see their income increase, they generally don’t spend it,” the Times reported.

Total U.S. household income in 2012 was $10,157 higher on average than in 2008. But average spending only increased by $4,789, and even getting spending to that level meant households in the bottom three quintiles had to go into debt, the Times reported.

Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities, said the predominance of income growth at the top of the U.S. economic ladder “has surely hurt consumption. Interestingly, it hasn’t helped investment much either, despite the higher savings rates of those at the top of the scale, since investment capital’s largely been hanging out on the sidelines given weak demand.

“It’s not like the folks at the bottom aren’t spending,” Bernstein said. “They are borrowing and spending. And as we should have learned, that’s not particularly sustainable.”

The Financial Post reported that former Federal Reserve Chair Ben Bernanke said one of his professional regrets is that he was unable to convince more Americans that the steps the Fed took following the 2008 economic meltdown were intended to help the entire nation, and not just the big banks.

“There was a sense we were favoring Wall Street as opposed to Main Street,” Bernanke said in a speech to the Economic Club of Canada. “That is unfortunate [but I'm] not sure what we could have done differently.”

The unyielding low interest rate policy pursued by the Fed during Bernanke’s tenure helped the banks recover and has driven asset prices much higher. But it is viewed by some as debatable how it has helped the living standards of average Americans, and perhaps has actually harmed those on fixed incomes.

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Income inequality is bad for the U.S. economy because the richest Americans don't feel the need to spend a high percentage of their money, and the less prosperous don't have the ability to spend more, according to The Fiscal Times.
spending, wealthy, Bernanke, Fed
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2014-59-23
Wednesday, 23 April 2014 01:59 PM
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