What's with the Economy -- Consumers Spending Up, High Interest Rates, Persistent Inflation

Both the Associated Press and The Wall Street Journal seem a little puzzled. Conventional theory says that with interest rates and inflation so high, consumers should be pulling back on their spending. But instead, they are spending like drunken sailors.

The fact some Americans are spending freely is, we think, a mirage. Despite all the happy talk coming out of the White House and the political appointees in the various agencies, the economy is in trouble. To be sure, unemployment is at a low, employers are screaming for more workers.

It's a mirage. One reason those autoworkers struck the Big Three is they can't afford to buy the cars they are making. If the total economy was in good shape, you wouldn't see the surge in unionization that's taking place.

This is a classic case of being led astray by surveys, or, as your mother said, not being able to see the forest for the trees. The media focuses on the national numbers dispensed in Washington. Those numbers look really good. But dig just a bit below the surface and you find clear signs of trouble: the share of American adults who live in middle-class house holds has steadily contractin the past five decades – to 50% in 2021 from 61% in 1971.

But, you say, household incomes are up substantially since 1970, And indeed they have. But middle-class households had not climbed as much as upper-class neighborhoods. According to the Pew Research Center, upper-income households incomes rose 69%, middle-class households rose 50% and lower income saw their income rise 45%.

This significant gap between the income levels of upper-income Americans and middle-class or lower-income Americans explains several things. Lower-income Americans came to think Donald Trump understood their struggles and would represent them. He became president, not Hillary Clinton. Lower-income Americans believe the deck is stacked against them, a view reinforced by Trump, which is why he retains a sizable base, While Joe Biden gets out and talks about :good paying union jobs in a theorhetical way, Donald Trump makes listeners believe he understands their struggle and will support them.

It also partially explains why beer is struggling. Here, the explanation is quite simple: Brewers have been increasing the price of beer significantly faster than their incomes have gone up. In short, beer has outpriced the market.

rose 45%.

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