On December 12, Myles Udland reported the following in an article for Business Insider:
“Consumer confidence is at an almost 8-year high.
“On Friday, the University of Michigan’s preliminary consumer confidence reading for December came in at 93.8, the best reading since January 2007 and a complete blowout of expectations.
“According to Paul Dales at Capital Economics, this data coupled with Thursday’s strong retail sales report indicates that we are looking at the best holiday shopping season in nine years.
“And there’s a big reason why: confidence among the lowest wage earners is roaring higher.
“In an email on Friday, Deutsche Bank economist Torsten Slok circulated the following chart showing that confidence among those in the bottom tercile of household incomes—the lowest third of households — surged to the highest since 2005.
“This is a far larger increase in confidence that the headline reading, and Slok attributed this surge among the lowest earners to the drop in gas prices.
“According to AAA, gas prices hit an average of $2.60 a gallon on Friday, the lowest since 2009.
“Crude oil was falling again on Friday, likely adding further downward pressure to gas prices, and potentially boosting what already looks to be a strong holiday shopping season.”
Consider the implications of this report. If the average American is driving 12,000 per year and the average car gets even 15 miles per gallon of gas, that means that a $1.50 decline in the price of a gallon of gas represents $1,200 in increased discretionary income, per year—or $100 per month.
Before I comment further, consider that the scenario that I am describing assumes fairly high annual mileage driven, fairly low mileage per gallon, and a fairly steep, sustained decline in the price per gallon of gas. It also assumes that all of that $100 per month is, in fact, “discretionary” income—that is, that the money will be spent for goods and services, rather than applied to existing debt or saved.
Nonetheless, economists are expecting that that extra $100 per month in the pockets of low wage earners will account for the difference between a very mediocre and a very strong holiday shopping season.
This is an inversion of explanations for poor sales at discount big-box retailers several years ago, when WalMart in particular attributed flat holiday sales to the failure to extend a suspension of employee contributions to Social Security, a change that took an average of $800 per year, or $75 per month, from the paychecks and wallets of low-wage earners.
It seems to me that rather than parsing the impact of such meager shifts in income for low-wage earners, we ought to be acknowledging (1) the degree to which our economy is now hinging on very modest increases or declines in income among the expanding working class as those low-wage earners increasingly struggle to maintain anything resembling a middle-class standard of living and (2) the need to increase not just the minimum wage but all wages for those in the bottom tercile of earners, not just to raise their standard of living but to prevent an economic decline that will erode the standard of living for everyone but the most wealthy. (Notice, too, that we are now talking about the bottom third of earners as a defined group—not about the bottom fifth or fourth of earners. This in itself is evidence of the growing gap between working-class and middle-class earnings—a gap that largely disappeared in the decades immediately following World War II.)
It seems time to stop talking about income redistribution as if it means only taking from the most wealthy and giving to the most needy. The ongoing redistribution of wealth—the increased concentration of wealth in the hands of fewer and fewer people—is making all of the rest of us poorer by making our economy more fragile and more volatile.
It may be arguable whether it is ethically or morally justifiable to insist that people be paid a “living” wage. But it doesn’t make much sense economically to try to keep masses of people one paycheck away from personal financial ruin. Their financial uncertainty means economic uncertainty for all of us who don’t have millions or billions of dollars as a cushion.