Jim D. writes (in response to Louis P's posting of the NYT article):
This is an illusion [i.e. that aggregate demand is being propped up by
upscale consumption].
As made clear immediately, demand has continued
to rise because >corporate profits, professionals' incomes, gains
from investments and executive compensation - the kind that
frequently comes in the form of stock options - are all surging,
supporting healthy gains in the economy.<
But there's something else which isn't mentioned. Workers are keeping
their spending up not only by moonlighting (etc.) when such jobs are
available, but also by getting deeper in debt. The surge of consumer
debt in recent years isn't simply based on the stock market and
overvalued housing. It's also due to what Bob Pollin calls
"necessitous borrowing" because incomes of the working classes are
stagnant while the need to spend (to pay for education, health, etc.)
continues to rise.
Of course, there are limits to how much debt working people can
accumulate, so this will eventually stop. In other words, Bosworth may
be correct right now, but the problem has been shoved into the future.
Do you have a "back of the envelope" sense for how this breaks down? If
workers continued their previous marginal propensity to consume (say 1980),
what would be the reduction in aggregate demand and how does that compare
with the other components of demand?
Paul
