Financial Literacy - Smart borrowing
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Consumers get mixed messages

q_v2.gif Would you describe the modern U.S. economy as "winner-take-all"? If that's true, how does the middle class benefit, if at all?

a_v2.gifThat term was borrowed from Robert Frank (no relation), an economist at Cornell who said that a lot of markets had become what he called winner-take-all markets, where most of the income goes to a very small number of people. It doesn't benefit the middle class. What happens is income flows into very few hands and there's less leftover for ordinary people.

An example of that was last spring when Forbes magazine reported that the top three hedge fund managers made incomes of about $3 billion apiece. I think it was $3.7 billion, $2.9 billion and $2.8 billion each. When people are collecting incomes of $3 billion, there's that much less leftover for you and me. That means in the middle classes, you're going to see income stagnating and that's why we saw the median income, for example, over the last few years, fall by a thousand dollars. So the middle class is struggling to make ends meet, to pay their mortgages and struggling to heat their homes.

This is not a sustainable situation and so savings rates fall, and we have these discussions about how people can stay out of debt and prepare for their financial futures. In a sense these discussions are useful, and it's important for people to think about these things, but on the other hand, it's also important for people to be aware of these bigger systemic forces in which they're operating.

I think, personally, that people need to expend at least as much energy on the political system and becoming aware of economic policy and pressuring their congressmen and legislators to do something about these forces that are making it difficult to secure their economic futures.

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