More Bullshit by Business Insider

The prophets of doom are at it again, this time with yet another beseeching article about how rising consumer spending cannot coexist with falling income.

Consumer spending is around all-time highs as a share of U.S. GDP, while labour income is at multidecade lows, he explained. “This has been wonderful for corporates: consumer spending boosts revenue, while labour costs are the corporate sector’s largest single cost. Rising consumer spending and falling wage share of GDP is great for profit margins.

But this peculiar trend is obviously not sustainable.

We already debunked a very similar article to this a few weeks ago written by Henry Blodget. There is not a single economic theory that says this is unsustainable. There are hunches that it could, but no empirical evidence that it actually is. These premonitions of doom reflect the wishful thinking of the author instead of economic reality. For example, 60% of S&P 500 profits come from overseas. There’s billions of people in the emerging market middle class buying stuff produced by S&P 500 companies. Then there’s rapidly growing wealthy class – both in the US and global – that consume much more than the lower classes. This is the Pareto Principle that the top 20% do 80% of the consumption, as indicated by the pie chart below:

Consumption has become more concentrated among the rich since 2005. This is why supply side economics is successful, by creating incentives for the rich since they are are so invaluable to the functioning of the economy.

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