It’s no wonder John Edwards’ “Two Americas” speech resonated so well; it’s all true. The Wall Street Journal, on the front page no less, offered a tremendous analysis on how economic growth in recent years has been terribly one-sided and that the post-recession recovery has “taken two tracks.” I’ll give you one guess which income bracket is thriving.
Upper-income families, who pay the most in taxes and reaped the largest gains from the tax cuts President Bush championed, drove a surge of consumer spending a year ago that helped to rev up the recovery. Wealthier households also have been big beneficiaries of the stronger stock market, higher corporate profits, bigger dividend payments and the boom in housing.
Lower- and middle-income households have benefited from some of these trends, but not nearly as much. For them, paychecks and day-to-day living expenses have a much bigger effect. Many have been squeezed, with wages under pressure and with gasoline and food prices higher. The resulting two-tier recovery is showing up in vivid detail in the way Americans are spending money.
The WSJ report did a nice job noting which businesses are prospering and what that tells us about economic gains.
* Hotels — Hotel revenue was up 11% in the first five months of 2004 at luxury and upscale chains, but up just 3% at economy chains, according to Smith Travel Research, a market-research firm. At the five-star Broadmoor Hotel in Colorado Springs, Colo., $600-a-night lakeside suites are sold out every day through mid-October.
* Consumer goods — At high-end Bulgari stores, meanwhile, consumers are gobbling up $5,000 Astrale gold and diamond “cocktail” rings made for the right hand, a spokeswoman says. The Italian company’s U.S. revenue was up 22% in the first quarter. Neiman Marcus Group Inc., flourishing on sales of pricey items like $500 Manolo Blahnik shoes, had a 13.5% year-over-year sales rise at stores open at least a year…. At Payless ShoeSource Inc., which sells items like $10.99 pumps, June same-store sales were 1% below a year earlier.
* Cars — A similar pattern shows up in cars. Luxury brands like BMW, Cadillac and Lexus saw double-digit U.S. sales increases in June from a year earlier. Sales of lower-tier brands such as Dodge, Pontiac and Mercury either declined or grew in the low single digits.
The (slowly) rising tide is not lifting all boats.
“To date, the [recovery’s] primary beneficiaries have been upper-income households,” concludes Dean Maki, a J.P. Morgan Chase (and former Federal Reserve) economist who has studied the ways that changes in wealth affect spending. In research he sent to clients this month, Mr. Maki said, “Two of the main factors supporting spending over the past year, tax cuts and increases in [stock] wealth, have sharply benefited upper income households relative to others.”
The good times upper-income Americans are enjoying represent a bounce-back from the hit that many of the wealthiest took after bonus income dried up in 2001 and 2002 and stock options went sour. For example, Wall Street compensation was up 16% in the first quarter from a year earlier, after having fallen from stratospheric levels the three previous years, according to the Securities Industry Association.
I know Republicans go apoplectic when we even mention such disparities, with the “class warfare” trump card expected to cut off discussion altogether. Nevertheless, it’s worth noting that these inequalities don’t have to be part of the government’s economic policies. Indeed, they weren’t — just one president ago.
During Clinton’s two terms, the median income for American families increased by a solid 15% after inflation, according to Census Bureau figures. But it rose even faster for African Americans (33%) and Hispanics (24%) than it did for whites (14%).
The growth was so widely shared that from 1993 through 1999, families in the bottom [20%] of the income distribution saw their incomes increase faster than those in the top 5%.
It’s about choices and values. When Clinton was president, the White House crafted policies to ensure broad economic growth. With his successor occupying the Oval Office, the opposite is true.
George Bush has his priorities; are they yours?
The perception of a fast-lane/slow-lane recovery has become a central political issue. This year’s stronger job market has led Democrats to shift their emphasis: away from the argument that Bush policies have failed to produce jobs and toward the idea that the expansion’s fruits haven’t been widely shared.
“They’re telling people this is the best economy we’ve had,” Sen. John Kerry mockingly told a riverbank crowd last Thursday evening in Charleston, W.Va., drawing jeers. “What does it mean when you don’t have any health care at all?” Hands started popping up throughout the audience, as Mr. Kerry paused to point to each one. “Too many people in Washington have no sense at all about what’s happening,” he said. His running mate, Sen. John Edwards, speaks of “Two Americas,” one “that does the work, another America that reaps the rewards.”