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Sat Mar 30, 2013, 05:40 PM

‘Trickle-down consumption’: How rising inequality can leave everyone worse off

[font size="+1"] this is the message that needs to be sent to the lumpen-proletariate (aka: the Republican Suckers)...[/font]


As income inequality in the United States has soared and median wages have flatlined since 1980, economists have spent a lot of time debating why the top 1 percent have done so much better than everyone else. Is policy to blame? The decline of labor? Technology?

An equally pressing question, though, is what those increasingly hefty incomes at the very top mean for the lives of everyone else. And a big, newly revised paper (pdf) by the University of Chicago’s Marianne Bertrand and Adair Morse finds that there is a connection, but not a happy one: The gains of the rich have come alongside losses for the middle class.

As the wealthy have gotten wealthier, the economists find, that’s created an economic arms race in which the middle class has been spending beyond their means in order to keep up. The authors call this “trickle-down consumption.” The result? Americans are saving less, bankruptcies are becoming more common, and politicians are pushing for policies to make it easier to take on debt.

If that argument sounds familiar, it’s because Cornell economist Robert H. Frank has been making this case for years. Those at the top are spending more on fancy goods and bidding up the price of homes. In response, the slightly-less-rich have been spending more to keep pace. That pressure, in turn, eventually ripples down to the middle class — where incomes have stagnated of late — in what Frank calls “expenditure cascades.”

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Reply ‘Trickle-down consumption’: How rising inequality can leave everyone worse off (Original post)
Bill USA Mar 2013 OP
newthinking Mar 2013 #1

Response to Bill USA (Original post)

Sat Mar 30, 2013, 08:49 PM

1. It is even more pervasive. It causes a hidden inflation

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