Ensure Appropriate Distribution of wealth Amongst All (Part 1)

It looks strange to me too when I advise someone to ensure appropriate distribution of wealth amongst all. Why should you do it? Why should I do it? And why should he or they should do it? We are earning better because we have worked in right direction with a lot of labor and sincerity. Why should we care for others who do not wish to work, who do not work in right direction or who work but with lesser amount of sincerity? But sometime it happens in our society that some people do not get success in spite of the best of their efforts – either due to their own inability, someone is stifling/creating problem in their ways or they have lack of resources at their disposal. If they are competent enough to work but are not able to get success due to lack of material resources, it can create frustration when they do not get success in spite of their hard labor. It creates imbalance in the society.
At one hand, people do not have sufficient funds to arrange for their meals timely and on the other hands; the rich section of the society has spills of the funds going waste in the presence of have-nots people. Earlier, none was caring how the rich spend their money. Most of the people have been busy to earn for them. But now, some persons are keeping eyes over you how you are earning and they can attack upon your resources if an opportunity arises.

Yes, most of us are doing it these days. Robert Frank writes in his article on Sunday, August 1, 2010 that Consumer spending accounts for roughly two-thirds of U.S. gross domestic product, or the value of all goods and services produced in the nation. And spending by the rich now accounts for the largest share of consumer outlays in at least 20 years.

According to new research from Moody’s Analytics, the top 5% of Americans by income account for 37% of all consumer outlays. Outlays include consumer spending, interest payments on installment debt and transfer payments. By contrast, the bottom 80% by income account for 39.5% of all consumer outlays.

It is no surprise, of course, that the rich spend so much, since they earn a disproportionate share of income. According to economists Emmanuel Saez and Thomas Piketty, the top 10% of earners captured about half of all income as of 2007.

What is surprising is just how much or our consumer economy is now dependent on the rich, and how that share has increased as the U.S. emerges from recession. In the third quarter of 1990, the top 5% accounted for 25% of consumer outlays. That held relatively steady until the mid-1990s, when it started inching up past 30%. It dipped in 2003 and again in 2008, but started surging in 2009 amid the greatest bull market rally in history, with the Dow Jones Industry Average rising nearly 50% in the last nine months of the year.

Mark Zandi, chief economist for Moody’s Analytics, cites two main reasons for the increase. First, the wealthy panicked during the financial crisis and stopped spending. When markets rebounded, they came out of their shells and started spending again. “I think that pent-up demand was unleashed,” he said. “It was an unusually high rate of spending.”

The second reason is that those people in the middle- and lower-income groups are struggling to pay off debt and stay afloat amid rising unemployment, as Friday’s data reminds us. That has crimped their spending.

The data may be a further sign that the U.S. is becoming a Plutonomy–an economy dependent on the spending and investing of the wealthy. And Plutonomies are far less stable than economies built on more evenly distributed income and mass consumption. “I don’t think it’s healthy for the economy to be so dependent on the top 2% of the income distribution,” Mr. Zandi said. He added that, “In the near term it highlights the fragility of the recovery.”

In fact, the recent spending of the wealthy may be unsustainable. Their savings rate has gone from more than 26% in 2008 to a negative 7% in the first quarter of 2010, according to the Moody’s Analytics data. They still have lots of savings. But the massive draw on that in the past two years is unlikely to continue at the same pace.

“I think we’re already seeing a slowdown in spending by this group,” Mr. Zandi says. And that should be a worry for all of us.

If it continues further, some imbalance can be witnessed in the economy, that can create frustration in some sections of the society – not good for the whole.

I may discuss further in my next post how to ensure appropriate distribution of wealth amongst all.

Be Happy – Ensure Appropriate Distribution of wealth Amongst All.