Worries mount on the health of the U.S. economy

The United States as a society is not about to collapse any time soon. But there are worries more around its future place the world's primary economic driver. Arianna Huffington goes as far as warning how America may be in danger of becoming a Third World nation. She cites instances of state and county governments curtailing even the most basic services -- closure of libraries and public schools, paved roads being allowed to degenerate or allowed to "return to nature", etc.

From unemployment hovering around 2 percent in the go-go late 90's, the 9.5 percent joblessness is even now seen as understated if one accounts for the thousands of Americans who are simply giving up on looking for work and falling off the labour force statistics...

[...] the [U.S.] economy actually lost another 131,000 jobs in July. The only reason the unemployment rate didn't go up was because so many people had quit looking and dropped out of the workforce. Tens of thousands of people throwing in the towel is definitely not good news.

Couple this with what is seen to be an increasingly unstable structure of wealth and spending distribution in the US economy. A Wall Street Journal report (published on Yahoo! Finance), reveals that top 5 percent highest income earners in the US accounted for 37 percent of consumer expenditure. The implications of this, according to the report are not good owing to the observation that the US economy has become a plutonomy...

The data may be a further sign that the U.S. is becoming a plutonomy–an economy dependent on the spending and investing of the wealthy. And plutonomies are far less stable than economies built on more evenly distributed income and mass consumption. "I don't think it's healthy for the economy to be so dependent on the top 2% of the income distribution," Mr. Zandi said. He added that, "In the near term it highlights the fragility of the recovery."

In fact, the recent spending of the wealthy may be unsustainable. Their savings rate has gone from more than 26% in 2008 to a negative 7% in the first quarter of 2010, according to the Moody's Analytics data. They still have lots of savings. But the massive draw on that in the past two years is unlikely to continue at the same pace.

"I think we're already seeing a slowdown in spending by this group," Mr. Zandi says.

And that should be a worry for all of us.

At least what worries Americans is the dependence of the consumption component of their economy on wealthy Americans. Compare this to the Philippines where consumption is driven by OFW remittances (to the tune of 10 percent of the economy) and outsourced work originating from overseas (to the tune of 5 percent of the economy, and growing).

A plutonomy led by wealthy citizens is considered unstable. Think then of how unstable a plutonomy (such as the Philippines') led by an expatriate workforce, a landed oligarchy, and workers dependent on foreign-originated work could be.