The rich are staying healthy and rich by staying socially distant and not spending their money during the COVID-19 crises, which is making those situated elsewhere on the economic ladder the poorer for it, according to a report published yesterday.
“Economists at the Harvard-based research group Opportunity Insights estimate that the highest-earning quarter of Americans has been responsible for about half of the decline in consumption during this recession. And that has wreaked havoc on the lower-wage service workers on the other end of many of their transactions, the researchers say,” Emily Badger and Alicia Parlapiano write for The New York Times.
“One of the things this crisis has made salient is how interdependent our health was. We’re seeing the mirror of that on the economic side,” Michael Stepner, an economist at the University of Toronto, tells Badger and Parlapiano.
“The top 25% of the wealthiest U.S. households accounted for two-thirds of the declines in credit card spending from the beginning of January to the end of May,” reports Alicia Wallace for CNN Business, “whereas the bottom 25% kept their spending patterns the same, researchers found, noting that the high-income individuals reduced their spending primarily because of health concerns -- not loss of jobs.”
The study is titled “How Did COVID-19 and Stabilization Policies Affect Spending and Employment?”
“The wealthy aren't holding back because they don’t have the money. By and large, they have lost fewer jobs and aren't the ones who are worried about making rent. They have a lot of discretionary income and before the pandemic were spending a significant chunk of that going to nice restaurants, the theater, or traveling and staying in nice hotels. Those are precisely the things that have been off limits since the coronavirus hit,” writes NPR’s Scott Horsley in LAist.
“That makes this very different from an ordinary recession, when spending on such services doesn’t dry up so quickly,” Horsley continues.
“Zooming into specific subcategories, we find that spending on luxury goods that do not require physical contact -- such as landscaping services or home swimming pools -- did not fall, while spending at salons and restaurants plummeted. Businesses that offer fewer in-person services, such as financial and professional services firms, also experienced much smaller losses,” it says.
So where is the data coming from?
“Recognizing the need to rapidly measure the pandemic’s economic shock on a granular level, four economists -- Ackman professor of economics Raj Chetty, economics professor Nathaniel Hendren, postdoctoral fellow Michael Stepner, and associate professor of economics John Friedman of Brown -- have worked with private companies to build the Opportunity Insights Economic Tracker, a platform that makes anonymous, aggregated private-sector data on consumer spending, employment, and other essential metrics publicly available,” explains Matteo Wong for Harvard Magazine.
“What we wanted to do was to measure and develop a real-time economic tracker that relies on private-sector data, that can make that information available to the policy community and help guide better decisions as we manage this crisis,” Hendren tells Wong.
“The federal government regularly reports economic data -- such as the record 13.6% plunge in consumer spending in April -- but they are released on a lag and aren’t detailed enough for granular analyses, according to the researchers,” Noah Manskar points out for the New York Post.
Meanwhile, “Sherrod Brown, the 67-year-old Ohio lawmaker and top Democrat on the Senate banking committee, came to a virtual hearing on Tuesday with Jay Powell, the Federal Reserve chair, armed with a stark message: U.S. policymakers, he said, risk repeating the same mistakes they made more than a decade ago. The Treasury and the Federal Reserve had ‘helped financial markets and corporations’ during the coronavirus crisis, he said, but ‘you are not holding up the other end of the deal,’” write James Politi, James Fontanella-Khan and Ortenca Aliaj for Financial Times.
“While Wall Street has been stabilized by the crisis-fighting measures and companies and the wealthy have received substantial tax benefits that in some cases could last for years, the economic fate of America’s middle and lower-income households remains very much in limbo. Many of the measures aimed at ordinary people are set to fade or expire soon and, given opposition from many Republican lawmakers, it is not at all clear that they will be extended,” they add.