DAILY TRIFECTA: The 1% Has Liftoff
The supply side demands everything
THE SET-UP: “Escape velocity” traditionally refers to the minimum speed required to escape Earth’s gravity. I’ve been using it to describe the accelerating accumulation of wealth and capital on the supply side of the economy. I submit that the top 1% has hoarded enough wealth and capital to escape the economic gravity that still governs the day-to-day existence of the other 99%. In fact, they can afford to create artificial gravity in the lofty space they now occupy.
In a Fortune follow-up to the WSJ story below, Peter Boockvar, chief investment officer of Bleakley Financial Group, doesn’t need a cute metaphor or analogy. Instead, he simply describes it as the richest “pulling away from the rest.” But he does see the gravity of the situation. Boockvar says the wealth they’ve amassed has transformed “rich people’s spending” into one of the three pillars currently holding up the economy. One pillar is “upper income spending,” the second pillar is “anything related to AI spend including data center construction,” and the third pillar is “government spending, whether that is related to infrastructure, the Chips Act, the (Inflation Reduction Act), Medicare, Medicaid and transfer payments.”
That third pillar is obviously in jeopardy, both from Elon Musk’s DOGE and from the nascent House Republican budget reconciliation bill. That bill will need to inflict drastic austerity to even approach the ballpark number needed to offset Trump’s tax cut promises.
Then there’s the A/I-fueled stock market, which Boockvar identifies as this economy’s “second pillar.” Along with rising home prices, it’s the reason “the richest are pulling away from the rest.” That also “means the economy is uniquely vulnerable to volatile swings.” Per Fortune:
Already, the vibes have soured somewhat, with consumer sentiment last month taking a dive among all income groups, including the wealthiest.
Indeed, Boockvar is now questioning the stock-market foundations of upper-income spending. The recent trend of AI-related developments driving outsize gains in the Magnificent Seven tech stocks could be coming to an end.
The “Magnificent Seven” refers to Apple, Microsoft, Alphabet, Amazon.com, Nvidia, Meta Platforms and Tesla. Of those, Nvidia has been wrestling Wall Street’s bears after DeepSeek broke the A/I fever that sent tech stocks into the stratosphere. But Tesla’s currently taking the steepest dive while its CEO is busily jackhammering the foundation of the economy’s third pillar. Apparently, the company doesn’t drive itself either. - jp
TITLE: The U.S. Economy Depends More Than Ever on Rich People
https://www.wsj.com/economy/consumers/us-economy-strength-rich-spending-2c34a571
EXCERPTS: The top 10% of earners—households making about $250,000 a year or more—are splurging on everything from vacations to designer handbags, buoyed by big gains in stocks, real estate and other assets.
Those consumers now account for 49.7% of all spending, a record in data going back to 1989, according to an analysis by Moody’s Analytics. Three decades ago, they accounted for about 36%.
All this means that economic growth is unusually reliant on rich Americans continuing to shell out. Mark Zandi, chief economist at Moody’s Analytics, estimated that spending by the top 10% alone accounted for almost one-third of gross domestic product.
Between September 2023 and September 2024, the high earners increased their spending by 12%. Spending by working-class and middle-class households, meanwhile, dropped over the same period.
“The finances of the well-to-do have never been better, their spending never stronger and the economy never more dependent on that group,” said Zandi, who oversaw the analysis, which was based on data from the Federal Reserve. The analysis runs through the third quarter of 2024 because that is the most recent data available.
Taken together, well-off people have increased their spending far beyond inflation, while everyone else hasn’t. The bottom 80% of earners spent 25% more than they did four years earlier, barely outpacing price increases of 21% over that period. The top 10% spent 58% more.
The buying power of the richest Americans, who Zandi said tend to be older and more educated, stems in part from the swelling values of homes and the stock market over the past several years. While rising asset prices are extolled as a sign of a good economy, they also are widening the gap between those who own property and stocks, and those who don’t.
During the pandemic, Americans across the spectrum saved at record levels. They spent less because they were stuck at home and received extra money from the government’s various stimulus measures. By early 2022, households socked away an extra $2.6 trillion.
Then inflation struck, and prices rose sharply. Most Americans turned to their extra savings to keep up with their rising bills. But the top 10% of earners kept most of what they had saved up.
Affluent people also found themselves with assets, such as stocks, that suddenly were worth far more. The net worth of the top 20% of earners has risen by more than $35 trillion, or 45%, since the end of 2019, according to Federal Reserve data. Net worth grew at a similar rate for everyone else, but it translated to a lot less money: an increase of $14 trillion for the bottom 80%.
Bank of America found that credit- and debit-card spending by their richest third of customers was growing faster than spending by the lowest-earning third. Certain categories of spending were especially robust. The top 5% of households spent more than 10% more on luxury goods abroad compared with a year earlier.
“They’re going to Paris and loading up their suitcases with luxury bags and shoes and clothes,” said David Tinsley, senior economist for the Bank of America Institute.
“It’s an extreme bifurcation” between those companies and others that cater to poorer customers, said JPMorgan Chase analyst Matthew Boss. Big Lots filed for bankruptcy last fall. Kohl’s and Family Dollar are closing stores. “They’re all battling for fewer dollars,” Boss said.
TITLE: Inheriting is becoming nearly as important as working
https://www.economist.com/leaders/2025/02/27/inheriting-is-becoming-nearly-as-important-as-working
EXCERPTS: Work hard, children are told, and you will succeed. In recent decades this advice served the talented and the diligent well. Many have made their own fortunes and live comfortably, regardless of how much money they inherited. Now, however, the importance of hereditary wealth is rising around the rich world, and that is a problem.
Whether a young person can afford to buy a house and live in relative comfort is determined by inherited wealth nearly as much as it is by their own success at work. This shift has alarming economic and social consequences, because it imperils not just the meritocratic ideal, but capitalism itself.
In 2023, 53 people became billionaires thanks to inheritance, not far short of the 84 who made their own fortunes, according to ubs, a bank. That may be because it is now easy to park wealth in an index fund, and the principles of wealth management are better understood. Moreover, many governments have obligingly cut inheritance taxes.
The most striking thing about the inheritocracy, though, is that it is not just about the uber-rich. The typical heir is someone inheriting a normal house, or the proceeds from its sale, not a superyacht or a country pile. And housing wealth has rocketed in recent decades, especially in apex cities like London, New York and Paris. Those who were fortunate enough to buy property before the long boom have made lots of money, passing on a windfall to their heirs. As a consequence, bankers and corporate lawyers now fight bidding wars over houses from the estates of deceased taxi drivers. As housing has become ever more unaffordable in places like New York and London, so a 90th-percentile income has become too small to pay for a 90th-percentile life. You must have significant capital, too—if not from your parents’ estate, then from the Bank of Mum and Dad.
For supporters of free markets, the rise of the new inheritocracy should be deeply disturbing. For a start, it creates a rentier class that faces a series of bad incentives. A loophole-ridden tax system means that the wealthy spend a lot of time gaming the rules; it would be better used to direct their capital to more productive uses instead. To protect their assets, homeowners become nimbys, blocking building and making housing unaffordable for those without inherited wealth. Knowing they can rely on their inheritance, moreover, the new rentiers may face little incentive to work or innovate.
More worrying still is how an underclass of non-beneficiaries is becoming increasingly left behind—and increasingly disaffected. If property becomes ever harder to buy, and a comfortable life harder to achieve, the incentive of young, aspirational workers to strive will be blunted. And when they believe that the system is stacked against them, their support for mainstream political parties withers.
TITLE: The Price of Being Poor
https://www.vision.org/price-being-poor-9776
EXCERPTS: In almost every aspect of life, disadvantaged people face obstacles. Just trying to get a bank account, or a place to live, or a medical appointment can mean negotiating a maze of paperwork and mounting fees. For families living paycheck to paycheck, the nuisance of an increased insurance premium, a bank fee or a flat tire can trigger a cascading crisis.
In the United States, state and federal governments spent more than a trillion dollars on anti-poverty programs in 2023. However, the money for such programs doesn’t go directly to those in need. Instead, the government often depends on private third-party contractors to deliver essential services. In her book Poverty for Profit: How Corporations Get Rich Off America’s Poor, Anne Kim calls these industries “Poverty Inc.” They are a “vast collection of industries that make their living off the poor.” According to Kim, “the infrastructure of poverty is big business. And as such, it is a major component of the systemic barriers low-income Americans face.”
The banking industry provides an example of this system at work. In “Banking and Poverty: Why the Poor Turn to Alternative Financial Services,” Berkeley Economic Review staff write that it’s “simply not profitable” for banks to offer services to middle- and low-income households. Banks combat this threat to their profitability by imposing fees for every service they offer. As a result, many low-income households can’t afford to use traditional banks. This forces them to rely on alternatives such as check-cashing services, which seem less expensive but come with their own steep costs. When emergencies strike (that flat tire, for instance), payday loans—cash advances on future paychecks—may appear to offer relief, but with annual percentage rates between 300 and 600 percent, they come at a crippling price if they can’t be paid back almost immediately.
Beyond predatory financial practices, housing insecurity is another critical dimension of poverty. Finding an affordable place to live is growing more difficult around the world, fueled by factors such as excessive demand, zoning regulations and high costs, and opposition due to NIMBYism. Simple greed is also a factor. In the words of Liz Zelnick of Accountable.US, “big corporate landlords have kept right on raising rent on everyday families regardless of how high their profits have grown.”
Rising rents force people to make difficult choices between paying for housing and meeting other basic needs. While the US Department of Housing and Urban Development (HUD) offers rental assistance, their 2024 Rental Assistance Program report admits the program is underfunded and can reach only “approximately 1 in 4 eligible families.” Even when assistance does become available, affordable options can come with hidden costs: unsafe neighborhoods, aging infrastructure, and inadequate heating, electricity or plumbing. The United Nations estimates that globally more than 1.8 billion people live in substandard housing, and at least 150 million are unhoused.
For those without homes, the challenges increase significantly. They are more vulnerable to violence, abuse, and mental and physical illness. The lack of a permanent address can complicate the ability to get or keep a job, receive important documents, or access vital services such as health care, food assistance and housing support. Perhaps most shockingly, between 40 and 60 percent of those experiencing homelessness in the United States are employed, but their wages simply can’t cover the high rents for housing near their workplace. The homeless, according to Peter Edelman in Not a Crime to Be Poor: The Criminalization of Poverty in America, are also “always targets of criminalization.” He explains that while underlying prejudices have often led societies to penalize the homeless, “municipalities are now enacting even more punitive measures due to shortages of funds for housing, mental health services, drug and alcohol treatment, and basic cash assistance.”
Inadequate health care further compounds these struggles. Due to high costs, lack of insurance and the limited number of providers in underserved areas, many don’t have access to desperately needed medical interventions, much less preventive care. Even with insurance, high deductibles and co-pays can make care unaffordable. A single medical emergency can wipe out life savings or push families into bankruptcy. Chronic health conditions, untreated mental health issues, and disabilities exacerbate the struggles of those living in poverty.
The criminalization of poverty adds another disturbing dimension to these challenges. Edelman explains how the justice system often operates as a two-tiered system. “Low-income people are arrested for minor violations that are only annoyances for people with means but are disastrous for the poor and near poor because of the high fines and fees we now almost routinely impose. Poor people are held in jail to await trial when they cannot afford bail, fined excessive amounts, and hit with continuously mounting costs and fees. Failure to pay begets more jail time, more debts from accumulated interest charges, additional fines and fees, and, in a common penalty with significant consequences for those living below or near the poverty line, repeated driver’s license suspensions. Poor people lose their liberty and often lose their jobs, are frequently barred from a host of public benefits, [and] may lose custody of their children.”
These challenges hit some groups especially hard. Racial minorities face additional barriers, including wage discrimination, housing segregation, and higher rates of policing and incarceration. Women, particularly single mothers, juggle the demands of caregiving with low-paying, unstable jobs. Immigrant communities also face such unique obstacles as language barriers, precarious legal status and workplace exploitation. When multiple barriers intersect, climbing out of poverty becomes extremely difficult.
The result? A vicious cycle where each issue makes the others worse. Breaking free requires not just extraordinary effort from those struggling but also changes to address the underlying systems that create and maintain these barriers.