Two Economic Models

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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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THE BIG PICTURE

You expect the big picture, and it's our job at Mother Jones to give it to you. And right now, so many of the troubles we face are the making not of a virus, but of the quest for profit, political or economic (and not just from the man in the White House who could have offered leadership and comfort but instead gave us bleach).

In "News Is Just Like Waste Management," we unpack what the coronavirus crisis has meant for journalism, including Mother Jones’, and how we can rise to the challenge. If you're able to, this is a critical moment to support our nonprofit journalism with a donation: We've scoured our budget and made the cuts we can without impairing our mission, and we hope to raise $400,000 from our community of online readers to help keep our big reporting projects going because this extraordinary pandemic-plus-election year is no time to pull back.

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