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Store window with going out of business signs.
You don't have to be an economist to see one of the most disturbing aspects of growing income inequality—the shrinking middle class. Just ask a retailer.
As politicians and pundits in Washington continue to spar over whether economic inequality is in fact deepening, in corporate America there really is no debate at all. The post-recession reality is that the customer base for businesses that appeal to the middle class is shrinking as the top tier pulls even further away. [...]

Although data on consumption is less readily available than figures that show a comparable split in income gains, new research by the economists Steven Fazzari, of Washington University in St. Louis, and Barry Cynamon, of the Federal Reserve Bank of St. Louis, backs up what is already apparent in the marketplace.

In 2012, the top 5 percent of earners were responsible for 38 percent of domestic consumption, up from 28 percent in 1995, the researchers found.

Even more striking, the current recovery has been driven almost entirely by the upper crust, according to Mr. Fazzari and Mr. Cynamon. Since 2009, the year the recession ended, inflation-adjusted spending by this top echelon has risen 17 percent, compared with just 1 percent among the bottom 95 percent.

Ninety percent of the increase in consumption between 2009 and 2012 came from just 20 percent of the population; the fraction of the population that has been doing just fine in the great recession, thank you very much. While all this conspicuous consumption is helping to keep the economy afloat, it's not sustainable, as one of the economists, Fazzari, points out: “It’s going to be hard to maintain strong economic growth with such a large proportion of the population falling behind. We might be able to muddle along—but can we really recover?”

It's hard to see how a nation recovers when the purchasing power of the nation is concentrated in 20 percent of the population. After all, we can't all be employed producing luxury goods, working at high-end restaurants and hotels. With every mid-range retailer, restaurant, or hotel that closes, the jobs go with them. That means more unemployed formerly middle-class people, more people who don't have extra money to spend, and less demand for the businesses that are still standing.

Originally posted to Joan McCarter on Mon Feb 03, 2014 at 11:45 AM PST.

Also republished by Daily Kos Labor and Daily Kos.

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