Comment by jihadjihad | Hacker News Reader

Comment by jihadjihad | Hacker News Reader

> Most urgently, if the economy can thrive without the spending of some 80 million workers and their households, what incentive do businesses have to serve them or policymakers to support them?

Neither the claim nor the implied conclusion holds water. If the top 10% of earners account for half of spending, it means that 90% account for the other half, which is not insignificant or "invisible". On top of that, the marginal propensity to consume (MPC) is repeatedly shown in economic studies to be higher for lower-income groups [0]:

> For low-wealth households, the MPC is 10 times larger than it is for wealthy households.

Due to the higher MPC, there is clear policy and business incentive to support and market to lower-income households. And even if the economy grows despite a smaller share of consumption from lower-income groups, it does not imply that if the consumption were to fall even further ("without the spending"), that there wouldn't be deleterious effects on the economy as a whole.

0: https://www.bostonfed.org/publications/research-department-w...

High MPC is just a low savings %. Mostly relevant for governments and public policy rather than businesses. Still, if a business is a big enough part of the economy it means workforce expansion involving lower wage jobs may "cost less" than it appears; if Amazon builds a new warehouse the workers might spend some of their paycheck at Amazon.

Decreased inequality with the same level of consumption would mean higher velocity of money, and thus higher total tax liabilities b

> If the top 10% of earners account for half of spending, it means that 90% account for the other half, which is not insignificant or "invisible".

You wrote this in response to a quote that pointed out that businesses have little inventive to serve the 80 million workers who account for low spending. FYI, 80 million workers are below 60% of the US non-farm workforce and those 60% account for less than 20% of spending, which is insignificant compared to their number.

> Neither the claim nor the implied conclusion holds water.

Actually your math is wrong and the water it holds is rather muddy.

> On top of that, the marginal propensity to consume (MPC) is repeatedly shown in economic studies to be higher for lower-income groups

This is another muddy statement on top of the previous one. FYI, the Propensity to Consume (PC) is 1 minus the propensity to save (PS) and PS equals the fraction of income that is saved. Although rich people consume more they save more too, thus their PS is high and their propensity to consume is LOW. In short, rich = low PC and low MPC.

On the other hand poor people save very little having to spend everything to survive, thus poor = high PC and high MPC.

> Due to the higher MPC, there is clear policy and business incentive to support and market to lower-income households.

Given my previous analysis, this is a nonsensical statement, MPC doesn't matter to business, total spending does, but high MPC means poor customers and low spending - nobody cares about this segment which is manifested as declining product quality for the mass market, something a lot of us observe every day.

Reply on news.ycombinator.com