Recently an article in a business publication asked why consumers weren’t spending more money. It exclaimed how perplexed the author was that the stock market was doing so well and gas prices were low but yet consumers still aren’t spending. Another recent business article claimed that consumers were taking the savings from low gas prices and putting the money into to savings or using it to pay off debt. Both articles were so incredibly wrong.
The stock market has little bearing on middle class consumers. It has exactly zero bearing on low income consumers. The stock market is the domain of the 1% with 70 – 80 percent of stocks owned by them. It isn’t enriching the middle class. Savings from low gas prices are not being saved. No, they are being used to just try and keep up with living standards.
Recently, zenruption has detailed the plight of the middle class in regards to increasing rents and home prices as well as seeing average family income actually decline substantially. On top of this the cost of modern existence involves expensive cell phone plans, high speed Internet and many new services that require monthly plan fees. Basically, it isn’t cheap to live decently in America.
Analysts have been perplexed by the new retail model that has consumers moving to discount retail, saying that they became accustomed to deals during the recession. Again this is wrong. Consumers got so squeezed during the recession that they now shop discount retail just to make it. They simply can’t afford the name brands unless they are found on a rack at TJ Maxx. It has actually become more popular for women to talk about the great deal they got on that new dress than who made it. Thus, fast fashion, in the vein of H&M, has also seen considerable growth along with the discounters.
Every theory and every article has been completely wrong so far. There is no grandiose reason for the slowdown in consumer spending. No, it’s due to the fact that the average American has gotten a really bad deal. The recession created a reason for corporations to take wages backward while investment funds bought foreclosed homes, turned them into rentals and have prospered from the insane increases in the cost of rents. The corporations that reduced wages have produced massive prosperity for their shareholders, much of it due to the savings on employment costs.
The average American has been squeezed at every turn while disparity has increased faster than ever before.
One thing the financial press has gotten right, is that if consumers don’t start spending soon we are heading to another recession. As witnessed in the last recession, higher unemployment is a great excuse for corporations to cut wages. Even with low unemployment currently, wages have stayed suppressed and have barely budged upward. Another recession will just serve to cut them even more.
This is creating a nightmare scenario for capitalism. The downward spiral begins with wage cuts, Americans slow their spending and another round of wage cutting begins which again slows spending further. The excesses of the capital markets and expectations for continued quarterly growth are causing the system to kill itself while destroying the average American consumer that accounts for 70 percent of Gross Domestic Product.
Essentially, greed is producing horrible results, as greed always does. The death of the American consumer means the death of the entire economic backbone of the country.
Those gas savings aren’t going back into the economy when they were needed to just try to keep up with living standards in the first place. Consumer spending isn’t coming back until wages do.
The next move is on you Wall Street.
Lina Martinez is a contributor to zenruption’s money and life sections. We love her because she cares about the plight of us average people. She may know money very well, but she wants to see that knowledge be put out there for the benefit of all. We also like that she has very good taste in cocktails.
Feature photo courtesy of Flickr, under Creative Commons Attribution-Noncommercial license