The consumer runs out of money

In the past 40 years, anyone who has tried to run a business in USA will tell you one fundamental truth—their biggest problem was not finding something to sell, getting a quality product produced, finding skilled employees, raising capital, and after the desktop revolution and the coming of the Internet, being able to mount a slick marketing campaign, the BIG problem was finding enough customers with money to spend.  Not surprisingly, lack of customers has been the #1 reason for business failures.

Of course, there are always companies that find a niche and produce a big "hit" product or service (although in a hits-just-keep-on-coming world, those successes tend to be very short-lived).  There are enough of them so the glossy business mags have something to put on their covers each month.  But since the USA worker hasn't gotten a raise since 1973 and the cost of the necessities of life keep rising, what's left over keeps shrinking.  At some point, it doesn't matter how wonderful your product or service, or how clever your marketing, there are simply not enough folks with money to keep your doors open.  Too many producers—not enough consumers.

The little guy on Main Street knew this long ago.  Now the problem has moved up the food chain so that as reported below:

seven out of every eight major American retail companies “cite weak consumer spending as a risk factor to their stock price,”

Because there is obviously no "free-market" solution to this problem, the only solutions will involve collectivized actions like raising the minimum wage.  But the BIG change will be to finally end the adherence to that most discredited crackpot economic idea—trickle-down "economics."  It turns out that rising yachts cannot life the tides no matter how much the economists would wish to make it so.

Companies Warn That Income Inequality Is Hurting Their Business

BY ALAN PYKE OCTOBER 15, 2014

After decades as the dominant economic theory in American politics, trickle-down economics is starting to lose its grip on the debate. For evidence of that slippage, look no further than the business community’s own communications with investors.

Two thirds of the largest retail companies in the country say falling incomes for their customers threaten their business, according to an analysis of corporate filings by economists at the Center for American Progress (CAP). That is double the proportion that cited slack earnings for the masses among their business risks in 2006. And seven out of every eight major American retail companies “cite weak consumer spending as a risk factor to their stock price,” the authors write.

The report examined formal corporate filings with the Securities Exchange Commission by the 100 largest American retail companies. The analysis is based on filings from 65 of the companies, as the other 35 did not have to file the forms publicly. In the documents, the companies are explicit about tying their future prosperity to earnings for their customers. Burger King’s 10-K mentions “decreased salaries and wage rates…decreasing consumer spending for restaurant dining occasions” as a risk factor. J.C. Penney’s says that “the moderate income consumer, which is our core customer, has been under economic pressure for the past several years.”

Wall Street analysts have also taken notice of the retail business’ focus on customer earnings. The report quotes analysts from Morgan Stanley, Bank of America, Citigroup, Wells Fargo, and a half-dozen other major business analysis firms that are not household names. Each of them points to weak consumer spending and the economic weakness afflicting the middle class as factors hindering the recovery.

These observations are not groundbreaking as a matter of economic theory. The importance of consumer spending and demand to broad economic growth is a well-understood basic fact of how the world works. Previous CAP research has found that the median American family saw an 8 percent drop in income from 2000 to 2012 while the cost of living rose, leaving them with $5,500 less to spend on essentials like groceries and clothing each year. The lingering stagnation of the broader economy owes in large part to this long-running squeeze on the middle class, which has persisted despite decades of the trickle-down tax and spending policies that conservatives have argued for for decades.

But in political terms, the fact that the largest companies in the business of selling stuff to Americans are saying publicly that their shoppers earn too little money is a significant development. It represents a shift in the narrative within the traditional base of support for right-wing economic policy, as the CAP authors note. “If the Heritage Foundation, the U.S. Chamber [of Commerce], and other proponents of trickle-down economics refuse to believe the overwhelming academic evidence that clearly shows low consumer spending and income growth are holding the economy back, they should listen to corporate America and Wall Street,” the report says. more