Sunday, May 25, 2014

It seems obvious

In an article a column at al Jazeera America, David Cay Johnston notes something that really seems obvious when you stop to think about it (italics mine).
Higher pay increases what economists call aggregate demand — the collective capacity to buy goods and services. When people make more, they have more to spend, not just on the rent but also on everything else, and they have time for both sleep and nurturing their children.

In contrast, when all the gains are concentrated in a few hands, as the economic data show since the Great Recession ended in 2009, piling on more does not help the economy grow in the face of low aggregate demand. People like Howard Schultz [the founder and CEO of Starbucks who last year earned $9,600 an hour], who already can consume virtually anything at any price, cannot consume more — they can only invest more. But without demand for goods and services there is little demand for new investment, creating a vicious cycle of widening inequality instead of a virtuous one of growing prosperity.
The rest of the column is discussing Seattle and Washington state (hence the use of Schultz), and is worth the few minutes it will take you to read it.

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1 Comments:

At 7:50 AM, May 26, 2014 Blogger davidcay had this to say...

Thanks for the kind words. To be clear, I write a weekly column for Al Jazeera America in which I express my opinion based on my reporting of the facts, as opposed to an article, which can include columns, but to many people implies reporting sans opinion.

 

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