Saturday, October 25, 2014

Report: Stagnant Middle Class Leads To Stagnant Economy

Trickle-down economics contends that tax cuts for the wealthy and corporations, along with deregulation, will result in economic growth. This theory ignores the fact that a middle class with money to spend is the ultimate force that stimulates the economy, increases demand and creates job. In a report, the Center for American Progress has found that corporate America and Wall Street are actually concerned that a stagnant middle class is leading to a stagnant economy. Regardless, conservative politicians and institutions such as the Heritage Foundation and the Chamber of Commerce continue to insist upon discredited trickle-down economics and are fixated on aiding the supply side of the equation, not the demand:

...This report gathers new evidence to show that middle-class weakness and stagnant wage growth are holding the economy back. We use the financial statements, known as 10-Ks—the annual report required by the Securities and Exchange Commission, or SEC—of the top 100 retailers in America and words of some of Wall Street’s top economists to underscore the point.

Time and again, America’s leading corporations warn investors that “decreased levels of consumer spending” (Kohl’s), “a renewed decline in consumer-spending levels” (Sears), and “decreased salaries and wages” (Burger King) could have a huge negative impact on their financial performance. The corporate consensus is clear: It is this cycle of stagnation—low wages, leading to weak demand, leading to slow growth, leading back to low wages—that is hurting companies, their consumers, and the U.S. economy at large.

...The evidence assembled in this report directly repudiates “trickle-down economics”—the idea that the only way to produce economic growth is to redistribute money to the rich, who will create jobs for everyone else. Conservative politicians, lobbyists, and commentators may still be stuck in the trickle-down mindset of the 1980s, but corporate America and the Wall Street analysts who closely follow it know better.

While it may at first seem obvious that low consumer demand impedes growth, conservative think tanks and other believers in trickle-down economics ignore the evidence. Stephen Moore, chief economist at the Heritage Foundation, approvingly quotes Arthur Laffer, the father of trickle-down economics, who said, “All economic problems are about removing impediments to supply, not demand.”

...If the Heritage Foundation, the U.S. Chamber, and other proponents of trickle-down economics refuse to believe the overwhelming academic evidence that clearly shows low consumer spending and income growth are holding the economy back, they should listen to corporate America and Wall Street when they say that a consumer base with large, growing discretionary incomes—in other words, a strong middle class—is the vital ingredient for job growth and a strong economy. Or, as Ellen Zentner, executive director and senior economist at Morgan Stanley, explained, “faster employment and wage growth for those at the bottom, were it to have staying power, would help lift consumer spending, the biggest part of the economy.”


Michael J. Mand said...

It's rather intuitive. Business never created a job, ever! As you have pointed out here, and have done so ad nauseum (because there is a stubborn ssgment of our society that refuses to accept fact, even when it stares them in the face), only consumers can create jobs. In reality, if it were up to business, not only would it not create jobs, it would eliminate them if it could. If Company A could satisfy its customere with fewer employees, would it ever increase its payroll? I don't think so. Jobs are created only when a business cannot meet its demands with the mumber of employees it already has.s This report hammers that point home clearly. And, as I said, to me, its intuitive.

Jeff Tone said...

Exactly. Jobs aren't "created" by businesses. Businesses fill positions in response to consumer demand. The more money consumers have to spend, the more demand goes up and the more jobs are created.