Where is the trickle down?

The New York Times published an article describing how the very rich are not saving very much.  Of course, having been showered with tax cuts to make them even more rich, they were supposed to be saving and investing, creating good jobs for all.   Don’t bet on it.

Bernasek, Anna. 2006. “The Rich Spend Just Like You and Me.” New York Times (6 August).

“Mark Zandi, chief economist of Moody’s Economy.com, has tried to study the savings rate for the rich. Because concrete official data for the top 1 percent is lacking, Mr. Zandi focused on the top 5 percent — households with an average real income of around $275,000.  He found that the proportion of after-tax income saved in this group fell from 13.6 percent in 1990 to 6.2 percent in the first quarter of this year.  And he knows of no reason that the top 1 percent would be notably different in their savings habits.  “The wealth effect is inducing less saving and more consumption by almost everyone, including those at the very top,” Mr. Zandi said.”

“Three economists, Jonathan A. Parker and Yacine Ait-Sahalia from Princeton, together with Motohiro Yogo at the Wharton School of the University of Pennsylvania, tried to track the consumption of the wealthy by constructing an index based on domestic sales of luxury retailers such as Tiffany.  Their research indicates that during the 1990’s, the average annual real sales growth of luxury retailers was a strong 11 percent. Unfortunately, their data stops at 2001. But looking at the domestic sales of individual high-end retailers since then, it seems sales have remained robust.  For instance, Tiffany reported that domestic sales grew 9 percent in the year ended January 31, 2006, and 10 percent the previous year.”

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