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Stocks point to a dying middle class

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Smart v. Stupid

Stocks point to a dying middle class

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Quick, what are the top 10 performing retail stocks this year?

No. 1 is Dollar Tree, one of those stores where everything costs a dollar, everything has “China” somewhere on the label, and quality is never the point-of-purchase reason. No. 3 is Dollar General, followed by Big Lots. Family Dollar is sixth. That’s a lot of dollars, but they’re mostly transacted in Georges, not Benjamins. Walmart is No. 10. Their market strategy is “cheap über alles.”

At the other extreme, there are a few premium retailers. Whole Foods is No. 2 . Macy’s is fifth. Nordstrom is ninth. They target customers in the upper-income strata—the buyer segment most mainstream, middle–class people hope to join. Someday.

But entirely missing are any retailers who aim to sell to the mainstream middle. I suppose you could make the argument that Vitamin Shoppe is a middle-class retailer (I wouldn’t) and one could argue that Costco aims at middle-class thrift buyers. You also could point to Macy’s attempts to down-market itself. In any event, the economy won’t be fixed on the backs of chunky vitamins and mega-packs.

In fact, retailers who sell to the middle class are hurting. JC Penny’s stocks are down 5.5 percent from the prior period. America’s mainstream-middle retailer Target is off 12.4 percent in share value. Kohl’s is negative too. Even Safeway, Fresh Market and Kroger took big hits this year.

What does it all mean?

  • Middle class purchasing power is shrinking.
  • As the middle class shrinks, its drop-offs won’t suddenly become homeless. First, they will travel through the economic tier that buys cheap crap from China. With luck, they’ll bottom out there.
  • As more and more middles shop low, more of them will be forced to accept lower–middle and then lower-income strata jobs. When middle-class buyers disappear, employers don’t have the margins to pay middle-class wages.
  • Rich people only will cover a small subset of the buying burden. Even if they have most of the money, they can’t—or won’t—support the American jobs base. Among the rich, there simply aren’t enough backs (to clothe) or mouths (to feed) to support a vibrant economy.
  • Of the top 20 retailers, only about one fifth sells to the rich. Most sell to the poor. Not many sell to the middle anymore.
  • This is happening now. Even positive economic news isn’t necessarily positive news for the middle class.

Do we really think we can support a viable economy with retailers whose most salient quality is “dollar?” Of course not. Serial entrepreneur Nick Hanauer (who sold a start–up to Microsoft in 2007 for $6.4 billion) recently wrote about this for Bloomberg. Hanauer says, “The conventional wisdom that the rich and businesses are our nation’s ‘job creators’ is… false.”

We’ve written about this before — jobs are created by willing buyers, not by willing sellers. Hanauer takes it one step further,

When businesspeople take credit for creating jobs, it is like squirrels taking credit for creating evolution. In fact, it’s the other way around. When the American middle class defends a tax system in which the lion’s share of benefits accrues to the richest, all in the name of job creation, all that happens is that the rich get richer.

If the trend continues, there won’t be a middle class left to beg the rich for jobs they never did provide. But if we’re to save the middle class, Hanauer says we should increase taxes on the rich. Then we should spend the money to fund things that benefit everyone. Even the rich will benefit, he believes. In any event, we have nothing to lose by reinstituting fair taxing of the rich. Neither coddling, pampering, nor worshipping them has been successful.

It took 40 years of a New Deal, a World War, and a Great Society to create a vibrant middle class in the United States. It took thirty years of Reaganomics capped by eight years of unregulated capitalism to bring our middle class to its knees. If we let our middle class die, it’ll take thirty years and a real — not rhetorical — class war to get it back.

Nobody wants that.

Jimmy Zuma splits his time between Washington, D.C. and Tucson. He writes the online opinion journal, Smart v. Stupid. He spent 5 years in Tucson in the early ‘80s, when life was a little slower, swamp coolers were a little more plentiful, Tucson’s legendary music scene was in full bloom, and the prevailing work ethic was “don’t - unless you have to.”

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