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The Rich Have Stopped Spending And That Has Tanked The Economy


In order for the U.S. economy to work well, Americans have to spend money. But the wealthiest Americans are not spending money the way they were before the COVID-19 pandemic. Harvard researchers have been tracking spending patterns, and our chief economics correspondent, Scott Horsley, has been looking at what they found. Hey, Scott.

SCOTT HORSLEY, BYLINE: Good morning, Noel.

KING: So retail sales are rebounding, but not among everyone?

HORSLEY: That's right. As you mentioned, consumer spending is ordinarily a huge driver of economic activity in the U.S. We saw it nosedive in March and April, when we had the coronavirus lockdown. It started to bounce back in May, but it's not bouncing back evenly, either across the country or across the income spectrum. Nathan Hendren and his colleagues at Harvard have been studying credit card data, and what they find is people at the bottom of the income ladder are now spending almost as much as they were before the pandemic started, but not so people at the top.

NATHAN HENDREN: When the stimulus checks went out, you see that spending by lower-income households went up a lot. Spending by higher-income households didn't go up by as much. And then more recently, you know, just in the course of the past month, for higher-income individuals, that spending is still way far off from where it was prior to COVID and has not recovered as much.

HORSLEY: In fact, Hendren says fully two-thirds of the total decline in spending since January is from people at the top of the income ladder - the wealthiest 25%. And because the wealthy control a big portion of U.S. spending, that's been a big drag on the broader economy.

KING: If rich people are so rich, why would they not be spending money?

HORSLEY: Not lack of money, by and large. These are not folks who've lost their jobs or who were worried about paying the rent. They are people, though, with a lot of discretionary income. And before the pandemic, they were using their discretion to spend a lot of that money on nice restaurants or the theater or travel or maybe staying in hotels, precisely the kinds of things that have been off-limit since the coronavirus hit. And that makes this very different from an ordinary recession, where spending on services is usually stable. Hendren and his colleagues found that businesses that deliver in-person services in wealthier neighborhoods have seen the biggest drop in sales, whereas retail stores and maybe takeout restaurants in poorer neighborhoods did see a little bit of a decline, but now they're seeing a stronger rebound.

KING: So what does that mean for economic recovery in this country?

HORSLEY: It spells trouble for the people who work in those nice restaurants and those other service-oriented businesses that cater to the wealthy. Hendren's team found big job losses among workers in high-income neighborhoods, much bigger than the job losses in poorer communities. And many of those jobs in wealthy areas may not be coming back anytime soon. You know, because it's not a lack of money that's keeping the rich from spending, the kind of tools the government usually uses to stimulate spending in a recession are not terribly helpful here.

HENDREN: From the perspective of people who are not living paycheck to paycheck, the main concern here is really fighting the virus. And unless we remove the threat of getting sick or getting your family members sick, it's hard to imagine that spending will be covered to the pre-COVID levels.

HORSLEY: We know from the public health experts that removing that threat could take a long time. Federal Reserve Chairman Jerome Powell warned a Senate committee yesterday that while, you know, retail sales have picked up some and there's been some pickup in jobs, there could still be millions of people out of work for an extended period of time. And the Fed chairman suggested they might need some additional help from the government.

KING: NPR's Scott Horsley. Thanks, Scott.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.