Can the Top 10% Prop Up the Whole Economy?

Is the top 10% up to the task of borrowing and blowing enough money to prop up a debt and bubble-dependent economy?

Since the entire economy depends on consumption for its “growth,” and discretionary consumption is financed with either cash or debt, that leads to two questions: 1) who has cash to spend on non-essentials and 2) who is credit-worthy enough to borrow money for non-essentials?

What makes a household credit-worthy? A) disposable income, i.e. cash left over after servicing debt and paying for essentials, and B) assets that can act as collateral for loans.

Since the top 10% take home 50% of all household income, it follows that this top slice has most of the discretionary cash:

The top 10% is also the only slice whose income has exceeded inflation over the past four decades:

In terms of assets that can serve as collateral, the top 5% own most of the nation’s household wealth. So not only do the top 10% earn most of the income, they also own most of the assets that can serve as collateral for loans:

Much has been written recently about the extreme concentration of wealth in the top .1%. The point here is that the top 9.9% may be doing OK, but much of the wealth owned by the top 10% is concentrated in the top .1%.

Since real income for all wage earners has declined since 2007 when adjusted for inflation, we have to ask just how well the top 9.9% is doing in terms of purchasing power.

Can the top .1% prop up the economy with their spending? Yes, they can prop up Maserati sales and buy $10 million vacation condos, but there simply aren’t enough super-wealthy to do the job. As for the top 1%, they can prop up the local Porsche dealership and pay dock fees at the yacht club, but there aren’t enough of them, either: around 1.5 million qualify as top 1%.

The top 5% households number around 6 million out of 121 million households, but that’s not a big enough number to fill every high-end bistro and private school in the nation. So that leaves the top 10%, the 12 million households with half the income and roughly 80% of the assets, with the task of spending enough free cash or credit-money to prop up an economy that depends on serial asset bubbles for massive injections of unearned income.

Is the top 10% up to the task of borrowing and blowing enough money to prop up a debt and bubble-dependent economy? Right now, we’re one stock-market-and-housing bubble pop away from finding out if the top 10% will be able and willing to spend, spend, spend once their bubblicious assets are evaporating like mist in Death Valley.
Want to give an enduringly practical graduation gift? Then give my new book Get a Job, Build a Real Career and Defy a Bewildering Economy, a mere $9.95 for the Kindle ebook edition and $17.76 for the print edition. 

Facebooktwittergoogle_plusredditpinterestlinkedinmail
This entry was posted in General and tagged , , , , , , , . Bookmark the permalink.
  • Ralph Nader book: “Only The Super-Rich Can Save Us”

    The book, called “Only the Super-Rich Can Save Us!,” is seven hundred and thirty-six pages long, and it contains dozens of characters, many of them real people—Warren Buffett, Barry Diller, and Ted Turner, among others—who act out Nader’s political fantasies. By the last page, most of the reforms that Nader has been arguing for all these years end up being enacted. Corporations are neutered. Third parties win. America is reborn.

    http://www.newyorker.com/talk/2009/09/28/090928ta_talk_khatchadourian

  • Boooo

    Yep they could, but they won’t. That would require that class to struggle like the rest of us. ain’t gonna happen!