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Yves Smith gets a look at the infamous “plutonomy” reports from Citigroup that were highlighted by Michael Moore in Capitalism: A Love Story, and notes that the authors blame low savings rates in the U.S. on growing income inequality. As the rich get wealthier, they feel comfortable spending more and more of their income, and “They just account for too large a part of the national economy; even a small fall in their savings rate overwhelms the decisions of all the rest.” Yves comments:

But behaviors on both ends of the income spectrum no doubt played into the low-savings dynamic: wealthy who spend heavily, and struggling average consumers who increasingly came to rely on borrowings to improve or merely maintain their lifestyle. And let us not forget: were encouraged to monetize their home equity, so they actually aped the behavior of their betters, treating appreciated assets as savings. Before you chide people who did that as profligate (naive might be a better characterization), recall that no one less than Ben Bernanke was untroubled by rising consumer debt levels because they also showed rising asset levels. Bernanke ignored the fact that debt needs to be serviced out of incomes, and households for the most part were not borrowing to acquire income-producing assets. So unless the rising tide of consumer debt was matched by rising incomes, this process was bound to come to an ugly end.

Italics mine. This is the great contradiction at the heart of American capitalism: the rich want to keep middle class incomes stagnant so there’s more money left over for them, but they also want to encourage the middle class to consume ever more, for more or less the same reason. Needless to say, this doesn’t work in the long run. America’s merchant princes need to make up their minds: do they want strong economic growth that benefits everyone (including the rich) or do they want crappy economic growth but with the extra money reserved all for them? Decisions, decisions…..

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This is a big one for us. So, as we ask you to consider supporting our team's journalism, we thought we'd slow down and check in about where Mother Jones is and where we're going after the chaotic last several years. This comparatively slow moment is also an urgent one for Mother Jones: You can read more in "Slow News Is Good News," and if you're able to, please support our team's hard-hitting journalism and help us reach our big $350,000 goal with a donation today.

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