Rich people buy more stuff. That has always been the case. But something’s changing: America’s wealthy aren’t just purchasing more than everybody else — they’re increasingly propping up the entire U.S. economy with their spending.
The economy “depends more than ever on rich people,” said The Wall Street Journal. Households making more than $250,000 represent just the top 10% of all earners, but a new report from Moody’s Analytics reveals they now account for nearly half of all consumer spending. That’s a “record in data going back to 1989,” when that same cohort was responsible for a mere 36% of spending. The wealthy have increased their spending faster than the rate of inflation, said the Journal, but “everyone else hasn’t.” The result is that rich folks are “powering America’s economy,” said Quartz.
Credit card delinquencies are rising
The American economy would appear to be “humming along” with low unemployment, said NBC News. But the economic picture looks worse “under the hood” as a “stark” wealth divide grows ever wider, and the Americans who are not at the top of the food chain are “facing increasing financial difficulties.” For those folks, taking on debt is one of the prime ways of keeping up: Lower- and lower-middle-income families have used credit cards to “maintain purchasing power.” They can’t always keep up. Missed payments on credit card debt have “grown to the point that they are now higher than pre-pandemic levels,” said FICO’s Can Arkali in an October blog post.
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Consumer spending is the “beating heart” of the American economy, said Marketplace. People buying stuff accounts for 70% of the gross domestic product. But there is a distorting effect when that spending is weighted so heavily toward the rich. “Maybe we’d have fewer people working in really high-end hotels and resorts and a lot more people working in elder care and child care,” said Josh Bivens of the Economic Policy Institute. And it’s not clear that wealthy households can sustain the economy on their own. If their spending is “being driven by record stock prices, I wouldn’t count on that for sustaining long-term economic growth,” said Moody’s Mark Zandi.
Inequality is ‘unifying but divisive’
Widening income inequality could have political ramifications. The gap was a “major driver behind Americans’ votes in the 2024 election for both Democrats and Republicans,” said Ipsos. About a third of 2024 voters said Donald Trump was best equipped to tackle the gap, while 39% gave the nod to Kamala Harris. Voters “haven’t yet unified behind a single party or candidate” to solve the issue, making the topic “unifying but divisive.”
There is a link between “economic inequality and the erosion of democratic norms and institutions,” researchers Eli G. Raua and Susan Stokes said in the Proceedings of the National Academy of Sciences. Even “wealthy and longstanding democracies” are vulnerable to democratic erosion as the income gap widens. The bigger the disparity in a democratic country, the “more at risk it is of electing a power-aggrandizing and norm-shredding head of government.”
