Elasticity in demand for rich and poor

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When a rich person gets richer- by having a tax break, for example- they don’t need to run out and buy anything. Their basic needs, and many not so basic needs are already met. So additional money to the rich is likely just to be salted away.

When a poor or middle class person gets richer- by getting paid closer to what their work is worth, for example- they do have things they need to buy. They have that operation they’ve been putting off because they had to make a choice between helping their kids pay for textbooks or getting their own hip fixed. They would rather eat some fresh food rather than frozen tv dinners. They want to move to a house rather than stay in an apartment. So money that a poor or middle class person gets above what they’re used to gets spent.

Nick Hanauer is a millionaire, but he gets it right in this interview with Jon Ronson:

There’s something unusual about Nick. For a multimillionaire, he doesn’t have your average multimillionaire view. In fact, he’s come to believe that the system he benefits so richly from is built on nonsense—specifically, the idea that “the markets are perfectly efflcient and allocate benefits and burdens perfectly efflciently, based on talent and merit. So by that definition, the rich deserve to be rich and the poor deserve to be poor. We believe this because we have an almost insanely powerful need to self-justify.”

And the biggest nonsense of all, he says, “is the idea that because the rich are the smartest, and because we’re the job creators, the richer we get, the better it is for everyone. So taxes on the rich should be very, very low because we’re essentially the center of the economic universe, the font of productivity.” Nick pauses. “If there were a shred of truth to the claim that the rich are our nation’s job creators, then given how rich the rich have gotten, America should be drowning in jobs!”

“So if the rich don’t create the jobs,” I ask, “who does?”

“The middle classes!” Nick roars. “A huge middle class will produce an unbelievable opportunity for capitalists.”

That’s exactly right. What we need is to make sure that people are well enough off to buy what they need and also invest in the future. That will drive our economy.
Found through Pharyngula.

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