There are various complex models for this, but the general explanation is fairly intuitive: Modern economies are built on a mass market. But if the great majority of people don’t have much (or any) disposable income, then there is no mass market, and it’s harder to start a business relying on any kind of mass sales. And with weak consumer spending, existing businesses have little reason to invest in growth, and instead disgorge their profits to shareholders, exacerbating the trend. In the end, you get a hollowed-out, bifurcated economy, where low-grade goods are sold to the broke masses on razor-thin margins, while incomprehensible sums slosh around weird luxury markets. SOURCE: What Democrats get wrong about inequality – The Week.
The words above do the best job I have seen lately explaining how prosperity happens. It is no secret that when Henry Ford started paying a living wage to his employees the birth of the middle-class started in earnest. If he had paid the then current minimum wage his workers and others like them could never have afforded the cars they make. Mass markets depend on a large customer base to be successful. That is as the article says is fairly intuitive.
There is a reason the Walmarts of the world are displacing so many local vendors and that is because with their mass marketing potential they can get their products at a lower cost than local competitors. Paying wages that are not livable wages is the logical result of Walmart’s success.
I am a “car” guy in that I enjoy watching all the car fix-it shows on satellite TV especially the Velocity channel. There seem to be hundreds of companies that take 40 – 50 year old cars and renovate them for their nostalgic customers. Most often the price of these cars are from $80,000 to as high as several million. Obviously the customer base for these companies are the upper 5% or so of the population. It is great that companies can earn a good living from these business but there are only so many people who can afford the products they produce. as the article says incomprehensible sums slosh around weird luxury markets.
It seems like our downfall as a middle-class nation is the result of not providing enough people an income that will allow any kind of discretionary spending. The national minimum wage has remained stagnate for more than a decade due to GOP resistance. In fact some in that quarter want to even abolish the minimum wage entirely and leave it up to individual companies to determine what they pay. There is said to even be some house bills to that effect.
They say statistics show that the income inequality is the worst it has been since the robber-baron years of more than 100 years ago. But we don’t, like we did a hundred years ago, seem to have a person with the character of Teddy Roosevelt to get us out of our most recent downward spiral. I don’t know what it will take to turn it around this time? But I do know that if it continues as is it currently going we will drive ourselves into an almost third-world status. I’m sure China will be more than happy to take over as the world economic leader if we falter.