by Hans Eisenbeis
Last week much of the United States was plunged into hellacious heat, echoing the contentious situation in Washington, DC. While the weather is hot, the economy is cool, and no one is doing anything about either. The weather will eventually break, but can the economy fix itself? Although there aren’t many encouraging signs, there is one: The number of high net worth individuals — people with at least $1 million in investable assets — actually increased 17% in 2009 and another 9% in 2010. In fact, in many parts of the country, there are more HNWIs today than there were before the Great Recession (BusinessWire.com, 12 July 2011). The affluent, in other words, have been doing just fine during the jobless recovery. So why haven’t employment numbers, housing sales and consumer spending increased?
The problem is that most Americans are not wealthy, and most have not made more money in the past three years. If the water rises on the yachts of the rich, it doesn’t seem to lift all other boats the way some wish it would. The fact is, the wealthy do not invest the rewards of tax cuts in the economy, they don’t build business or add jobs. According to dozens of studies, they simply save their tax kickbacks (NYTimes.com, 6 July 2011). That often means investing in stocks and bonds, and that explains the general growth in their wealth as they’ve buoyed the equity markets.
In the heat of summer, average consumers care more about employment and home values than about federal budget negotiations. While there is widespread disgust with our legislators’ inability to find compromise and agree on a course of action, one thing is certain: The economy is lukewarm at best, and doing nothing is not working.