In her Washington Post column Heather Long takes note of a development in the U. S. economy:
The top 10 percent of earners now drive about half of spending, according to Moody’s, up from 36 percent three decades ago. These people will determine if the U.S. economy avoids a recession. These are households earning $250,000 or more, and they are largely doing just fine, buoyed by strong stock-market gains, mansions and rental properties that have shot up in value in recent years, and a rebound in business dealmaking. The wealthy continue to spend on lavish vacations, parties and events, and that masks the strain that many middle-class and moderate-income families are experiencing.
The “K-shaped” economy is back, where there’s a clear divergence between how the top and the bottom are faring. Businesses understand this. It’s why credit card companies have introduced even more exclusive credit cards this summer with higher fees, all-inclusive resorts are debuting $1,000-a-night experiences, and luxury car brands such as Porsche and Aston Martin have been among the first automakers to raise prices, because their clientele is less likely to push back. Any company that can is trying to go “upmarket” as much as possible in this environment.
I think the implications of this go far beyond the risks of tariffs to consumption on the part of those earning $170,000 per year or more which is the focus of Ms. Long’s column. It means that the upper middle class aren’t saving or investing at the rates they should be. It means that we need a rebalancing of the economy towards greater production and less consumption as I’ve been contending for some time.
It also supports another point I’ve been making for some time: tax policy needs to be more focused than at present. Simply cutting the tax rates of the top 10% of income earners isn’t encouraging them to save or invest as much as needs to be the case. It’s encouraging them to consume.