(CNN) Consumer spending, which makes up more than 70% of GDP, declined at an annual rate of 3.1% in the quarter, according to Thursday's report. It was the first time consumer spending fell since 1991 and the largest drop since early 1980.
What impact does this have on economies of scale? Consider that big screen TVs, surround sound stereo systems, and multi-core computers are made possible by economies of scale. There are many millions of American consumers, creating vast markets for a wide variety of goods to be sold.
Lately, middle class consumers' disposable income was supplemented by increased housing prices, which allowed them to use their homes as an ATM. The housing bubble has burst now, so where do consumers get new disposable income to help provide the scale necessary to make those new toys that we like so much? Credit cards are out of the question, given the credit crunch. Barack Obama's tax plan seems like a nice way to keep money in consumers' pockets.
Now, some people are whining because that tax plan amounts to socialism. This is totally bogus, but even if it weren't, the rich should stop to consider that in the absence of a middle class with disposable income, how will companies achieve economies of scale? Do you think that the rich can pick up the slack when consumer spending is 70% of GDP? If businesses lose the scale they have now, prices for goods will shoot up, and the wealthy might learn exactly what debt they owe to the existence of the middle class consumers.
If no one has any money to buy your stuff, do you think you'll still be rich? Go ask the auto-makers.
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