If %80 percent of wealth is concentrated in %5 of the pop, how can consumer spending account for %70 of econ?

Question

The math just doesn't make sense to me!

Can someone:

1. Correct this assumption: If %80 percent of wealth is concentrated in %5 of the pop
2. Once accurate numbers are established, explain the calculus

It seems to me that if wealth is concentrated in a very small percentage of the population, most consumers have very little influence on whether or not a recession will materialize.

Answer 1

Wealth is not stagnant. It circulates. Who actually has the money is irrelevant to the amount of it being spent. Don't focus on the percentages, it's the raw volume of money in circulation, that affects the economy.
Rich people spend more than poor people. They pay more money in taxes and make more charitable contributions too. In short, they don't collect money so much as they use it. It is this use of money which drives consumer spending.
People who just sit on their money and hide it away, don't help the economy, because that money, which is in effect, the value of their labor, isn't doing anything to create more money.

Answer 2

I think most of the answers are part right, some are 100% right. So just to clarify:

1). Consumer Spending and income is the amount spent or earned on new stuff in a year. Wealth is an asset, which, when you think about it, represents future consumption. Wealth is not counted as part of Spending unless it is created in the year.

2) However, Income is also unequal! But probably not as bad as you say above. But bad. However, the wealthy also spend money, even at a rate which is lower than poor people. But they make so much, that even a small rate comes out to high amounts of spending. If I'm poor, I might save 5% of 20,000 or 1,000 per year. If I'm rich I might save 30% of my 1 billion dollar salary, which is 100,000,000!

3)Armed with these numbers, you should be able to come up with consistent numbers, if not, then it could be that the government is providing bad information to us.

Answer 3

It has to do with the velocity of money and the amount of credit available. Most Americans are born poor and will stay poor all their lives because the rich extract more and more wealth from the economy (since they have a huge head-start). But to keep the nation from erupting into a revolution, the rich extend credit to the poor so that the poor can borrow money for present consumption. This "smoothes" their consumption over their lifetimes (helping smoothe economic cycles), allowing them to consume long before they have earned the income they need for their consumption.

Answer 4

There is no contradiction. It is possible that 80% of the consumption is concentrated in 5% of the population as well - and still account for 70% of the economy. (The thirty percent is government spending, spending on capital formation, and net exports).

In fact, consumption inequality is not as bad as wealth inequality. That's because the wealthy spend proportionately less of their income than the non-wealthy.

Answer 5

"Wealth" refers to assets held, including property, money in banks, and cash under mattresses.

"The economy" in this instance, refers to the money that is being spent.

therefore 70% of the money being spent is being spent by consumers (as opposed to businesses), while 80% of the money (and other assetts) which is stationarry, is owned by 5% of the population - there is no contridiction.