I don’t usually turn to the wire service of the Associated Press for satire, but an AP story published last week by the online version of the Indianapolis Business Journal made me wonder if somebody was pulling my leg.
The headline proclaimed, “Rich begin feeling the pain in down economy.” The story was about how our current economic recession, or slump, or train wreck — whatever the technical term is — has affected the lifestyles of the people who have benefited the most from the smash-and-grab economic policies that have brought us to this point.
“They are investing more conservatively, spending less on luxury goods and are being more thrifty with their credit cards,” the AP story noted. “Many are asking their personal shoppers and private-jet travel providers to seek the best deals rather than over-the-top extravagances.”
I didn’t know whether to laugh or cry.
The story went on to point out that 10 percent of American households with the highest incomes account for nearly a quarter of all spending. Since we now live in a society that consumes things rather than makes them — consumer spending accounts for 70 percent of our gross domestic product — it follows that when our biggest spenders start cutting back, the rest of us are bound to suffer.
“We face a very different environment for luxury indulgence in 2008 as compared to 2007,” said Pam Danziger, the president of a marketing company that serves our country’s $322 billion luxury goods market. She warned of “a very difficult marketplace for luxury goods over the next five years.”
The story implied that we can only hope the rich get richer as soon as possible. That way they can get back to tipping the rest of us.
This, I thought, has got to be a joke.
For almost 30 years, we’ve been told that the rich were the ones that made the economic world go ’round. This is what was meant by the trickle down theory, the idea that the wealth of a relative few inevitably trickles down to many more in the form of investments and jobs. The trouble with this theory is that it underestimated the desire of the wealthy to hang on to their stuff.
How else can we account for the fact that, for most of us, the real value of wages and salaries hasn’t really increased since the late 1970s. As home-building executive Michael Hill pointed out in the Washington Post, 40 years ago, the median national price of a house was about twice the median household income. Then, 20 years ago, the median home price was three times median income. Ten years ago, that differential became four times income, or, in most cities, even more.
On the surface, of course, everything looked great because even though our wages and salaries were flat, we were still buying those houses, along with lots of boodle to cram into them. We were able to do this thanks to easy credit.
That’s right: Instead of more money in our wallets, everybody was given plastic. This enabled us to act like we had money when, in fact, what we really had was debt.
The result, as more and more economists and assorted other social observers have been pointing out, was the erosion, if not collapse, of what our parents called the American middle class.
It wasn’t always like this. According to Alan Blinder, a vice chairman of the Federal Reserve, income inequality — the gap between the wealthiest Americans and the American median income — remained pretty constant in this country between 1947 and 1977. This started to change in the 1980s. Economists Ian Dew-Becker and Robert Gordon have shown that, over the past 20 years, virtually all the income from productivity gains have gone to America’s wealthiest 10 percent, those big spenders who are now sending their personal shoppers to the sale rack at Saks.
While you may be scraping by to make your house payment or fill that prescription, the median pay for the heads of companies in Standard & Poor’s 500 index was nearly $8.4 million in 2007, up around $280,000 from 2006. Between them, the 10 best-paid CEOs — just the right number to field a baseball team, plus one to keep score — made more than a half billion dollars last year.
I guess that wasn’t enough.