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I promise I’ll connect this to retail but…..

by Robert Hetu  |  February 27, 2014  |  4 Comments

I have been thinking about income inequality. So much talk on the subject but not always intellectually honest debate. So please stick with me while I point out a few things and I promise I will get back to retailing. I did a fairly simple comparison of two charts.

First is the top 1% share of total pre-tax earnings from 1913 to 2007.

top-1-share-of-income-us

The second is called Sectors of US Economy as Percent of GDP 1947-2009.

Sectors_of_US_Economy_as_Percent_of_GDP_1947-2009

 

As I suspected the situation is more complex than simply taxation policy which absolutely favors HOW the rich grow their wealth. And it’s certainly not the rich taking money from the middle class. There are a few inflexion points in these charts. In 1976, when the top 1% was at its lowest percentage of income, some key changes were happening in GDP. Note the dramatic increase in professional and business services in 1976, as well as the beginning of a steep growth in the trade deficit. This is also the start of tremendous growth in financial services and real-estate which surpassed manufacturing around 1986.  Also in 1976 we were at the midpoint of the sharp decline in manufacturing‘s impact on GDP. So what does all this mean? The base of manufacturing that supported a vast middle class has fallen to a level that fails to support workers. There are other graphs, like the participation in labor unions which declined in direct relationship to the decline in manufacturing, but I don’t want to complicate this too much.

I watched during the late 1980’s and all through the 1990’s when bad policies by the administration sent manufacturing overseas at a dramatic rate. Simultaneously prices at large discount stores remained flat, declined, or grew slowly while products that were much cheaper to manufacture filled the shopping carts of Americans. This created an artificial feeling of wealth for middle-America but was not sustainable (I said I would get back to retail). So when we visit a discount store to purchase a bath towel for $3.99 do we imagine for one minute that the towel could have been made and consumed in America for $3.99? This is a simple but efficient example of what caused the current level of inequity.

I am not an apologist for the rich as I grew up in a home that steadily declined from being solidly middle class to lower middle class over the 1960’s and 1970’s. Government, politicians and media need to stop playing the class warfare card. It is damaging to our nation and will not do a thing to fix the problem. We need to radically change our education process, encourage businesses to bring profits back into the US economy, foster small business growth and embrace the principals that made America an economic powerhouse. We need to change tax policy to encourage the rich to increase their investments in US business. The pie is not finite; we can grow the economy and ensure a bright future.

Retailers – you must do your part.

Category: 

Tags: consumers  customer-analytics  economy  gdp  government  manufacturing  middle-class  retail  rich  taxation  the-one-percent  trends  

Robert Hetu
VP, Analyst Retail
7 years at Gartner
29 years IT Industry

Bob Hetu is a Research Director with the Gartner Retail Industry Services team. His responsibilities involve tracking the technology markets and trends impacting the broad-based retail merchandising and planning areas. Mr. Hetu is an expert in the areas of brand, vendor and assortment management, merchandise planning, allocation, and replenishment. Read Full Bio


Thoughts on I promise I’ll connect this to retail but…..


  1. Matt Warren says:

    Great article. Hey – the biggest prior peak was adjacent to the great depression! Not surprising. In addition to trade deficit and the rise in services to compensate, I suspect one of the changes is related to large corporations.

    Step 1: congress and business works to move “regular folk” from the pension and social security system to 401(k).
    Step 2: Get regular folk to invest in the market.
    Step 3: Regular folk demand higher return rates.
    Step 4: Boards hire more expensive leadership to get the earnings per share up (the start of the “INCOME INEQUALITY”).
    Step 4: Boards cut costs in supply chain – enter TRADE IMBALANCE.
    Step 5: C-levels have cut all the supply costs they can in the supply chain so they look internally. Skeleton crews and job fear become part of the culture. Layoffs affect more middle class (increase in INCOME INEQUALITY).
    Step 6: Bring out new HDTVs and phones not ever year but almost every month – get consumers addicted to consumerism – they’ll never notice the income inequality and trade deficits if they’re glued to their devices.

    To summarize – the regular folk to some degree are increasing their income inequality – regular folk own stocks – they elect boards – they hire C-levels and they live with the results.

    The solution – sustainable growth. Unfortunately the competition doesn’t agree.

  2. […] I have been thinking about income inequality. So much talk on the subject but not always intellectually honest debate. So please stick with me while I point out a few things and I promise I will get back to retailing.  […]



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