Henry Blodget dissects a chart featured in a recent blog from the University of Chicago’s Booth School of Business based on economist Thomas Piketty’s research that shows there has been absolutely no income growth for the bottom half of Americans. One the flip side, Blodget explains the problems this causes for the economy. Following is a transcript of the video.
Henry Blodget: Another very interesting data point came out this week. As you know we talked about on “The Bottom Line,” the impact of consumer spending on the economy and what drives consumer spending, which is incomes, basically what people are paid at work. Very interesting new chart out this week from Piketty and Saez, who are the “deans” of inequality and income growth.
We’ll go to the telestrator and take a look at this chart but basically with this chart is showing is the breakdown of income growth over the last 35 years in the United States. And if you look far left in the chart, right here, what you find is that the income for the bottom 50% of the country is zero income growth on a real basis and the middle 40% — so that takes us up to 90% — is very small. All of the income growth has gone here to the top 10% and most importantly the top 1% and .001%.
So people say when you point this out, they say, “Well, that’s outrageous, you just don’t like people to make money, people shouldn’t be successful.” That is absolutely not the point of highlighting a chart like this. People should be successful. A lot of incentive to do that. It’s good that some folks are making a lot of money but the problem for the economy, even beyond questions about fairness and equality and so forth, is that the folks who spend the most money in the economy and our economy in the US is driven by consumer spending. Seventy per cent of the economy is consumer spending. Folks who spend the most money are in fact the 90% of people here who have very little to no income growth.
And so if you look back over the last 10 years and ask why is it that the economy is not growing that fast. The reason is that the people who spend the money in the economy are not getting paid enough to spend more and grow the economy. So one of the things we said here on the show and will continue to say is that one of the things that we need to really regenerate the economy in the US is getting more income to the 90% of folks who create the value and ultimately need to share in it.
The 1% has done extraordinary well primarily through capital gains. But if we want the economy to be stronger and grow faster so folks spend more, we have to get more of those gains and that value creation to the 90%. So ultimately that means companies have to share more of the value they create with the folks who helped create it, which comes directly to pay and this chart highlight that in particular.
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