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CutiePie

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#6 | Posted by JPW at 2020-06-18 02:11 AM

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FTA : It spells trouble for the people who work in those nice restaurants or other service-oriented businesses. Hendren's team found big job losses specifically among workers, many of whom don't make a lot of money but who worked in high-income neighborhoods.

Yes, again, nothing to do with the "rich" (most dine-in restaurants include big chains and family places that cater mostly to middle class, not the very rich) and they were all shut down, and many (current estimates are 25% to 50%) will not survive. Some exist on takeouts, delivery and pickups, but may not last beyond 60 days. Most high-end restaurants are still shut as there is no economic sense for them to operate at less than 85% capacity.

FTA : That makes this very different from an ordinary recession, when spending on higher-touch services doesn't dry up so quickly.

Sure, but we already knew that, but it's no fault of the "rich" not wanting to spend money who, according to this research, "tanked the economy" - it's just that the nature of the economy itself changed very drastically and very fast, primarily due to the governments' (mostly states, muni and also federal) actions and mandates - not that I blame them, though it might have possibly been handled less heavy-handed or restrictively - maybe a little less NY or CA and little more Sweden, or some different mix, or maybe little less TX and FL and little more CO, or maybe in the U.S. and federalism, it's impossible, therefore the economy's recovery is / will be "uneven" as Fed's chair Powell conceded?

If authors made this research about the changes in "discretionary spending" behavior (on any income level) instead of the "rich" not wanting to spend and thus "tanking the economy" it would be different, because that's where the percentages and the difference between the "essential" and "non-essential" spending shows up - in their data as well as all other data.

But it seems they wanted to make a clumsy point, blaming the "rich" for the problems in economy.

BTW, economy was not that great even before COVID-19, as I posted several times on this site, despite glowing pronouncements about "best economy in generations" or supposedly great unemployment numbers, while the very nature of "gig economy" made those economic numbers unreliable and misleading as was obvious from declining average hours worked, productivity and some other, little more obscure economic indicators.

#6 | Posted by JPW at 2020-06-18 02:11 AM

Think outside the box a bit. Go beyond the stated conclusions.

I usually do, but stated conclusions were exactly the point of the research and article, and on top of that they were based on data which is upside down, i.e., cause and effect were reversed (as I will show) which makes this research is even worse than useless.

"The Rich Have Stopped Spending And That Has Tanked The Economy" - that's right off the bat, in the title and through the article, so that was the main conclusion that research wanted and made it a point to make. IOW, the "research" was only there to support the original premise / conclusion, so they tried to fit the data to it, and made a horrible job of that, too.

What this is saying is that our economy is way way worse than we thought.

That's a given, only it's not worse than we thought, it's worse than the usual cheerleaders, in government and media, are telling us it is - but we can see that from standard economic data, not that there is anything about it in the article - it's not the point of this "research" as they made it obvious.

e.g., 30% of people have missed mortgage / rent payments in June alone - no, things are far from great, but that's not what research is trying to prove.

... even with the core 80% (more?) of the population spending the same
... maintained by the majority of the country maintaining their ways.

That's not the number they could possibly mean by "people at the bottom of the income ladder."

It's accepted that 70% of the GDP ("economy") is driven by consumers, then 30% is business financial services, manufacturing and B2B services not directly involving the consumer - much of both stopped functioning normally, i.e., this is not a demand-driven recession (people still wanted to consume services), it's a supply-driven recession - transactions and services people and/or businesses usually consume or exchange in, were simply shut down.

Here is one example of upside-down data in the research : FTA : ... before the pandemic were spending a significant chunk of that going to nice restaurants, the theater, or traveling and staying in nice hotels."

It's not that "rich" (they are for some reason defined as whopping 25% of population) got greedy and didn't want to spend this money on nice restaurants or theaters - they couldn't because of lockdowns. And by the way, it's not just specific or limited to the U.S., the same story was everywhere else in the world where lockdowns were the norm... would be interesting to compare this to Sweden or Iceland, for example where lockdowns didn't occur and they tried "herd immunity" experiment which didn't seem to work well, as they now acknowledge.

FTA: "When the stimulus checks went out, you see that spending by lower-income households went up a lot," said Nathan Hendren, a Harvard economist and co-founder of the Opportunity Insights research team. - Well, duh! $1200 is not really a "stimulus" for someone "rich" but for someone who lost income it is money that could be spent on necessities.

Then there also needs to be taken into account that sharp drop in the market rendered someone "rich on paper" due to accumulated stock wealth, like in 401(k), IRA or options-based "pension" plan, and/or possibly with a mortgage or student debt and potentially at risk of losing their job would not consider themselves "rich" any more - any financial uncertainty would close the wallets to discretionary spending.
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