As the economy continues to sour, consumers have gone on strike. For the past few months, I have been contemplating the following economic and social trends that seem to explain why.
- American productivity has risen almost 20% in the last decade (Source)
- Real median income over the same period has declined (Source)
- Executive compensation has risen astronomically (Source)
- Consumer debt has risen substantially (Source)
- Consumer spending comprises 70% of GDP
Rising productivity is what enables companies to increase employee’s pay. Increases in pay result in the overall rise in our standard of living. However, in the last decade, this relationship between productivity and rising employee pay seems to have been fractured.
Instead, the benefits from rising productivity over the last decade have been channeled primarily to executives. Their incomes and bonuses have continued to rise to unprecedented levels. Unfortunately, someone forgot to tell the masses that they were not included. Accustomed to general increases in standards of living and inspired by the rising wealth of the top earners, the majority of consumers mortgaged their homes and leveraged their credit cards to maintain an upward trend in standards of living. We borrowed to keep up with the Jones’s and maintain the illusion that we were making progress.
Enter the economic collapse of 2008.
Consumers have stopped spending. How could they do otherwise? Their credit cards are tapped and their mortgage options have evaporated. The pundits and the economists are pleading with consumers to resume spending but where is the disposal income supposed to come from?
It seems to me that the consumers are on strike. I can’t say that I blame them.