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The Wealth Effect: Big Spending Draws Attention as Poor Struggle

People tour the inside 'The Vessel,' a large public art sculpture made up of 155 flights of stairs at the Hudson Yards development, a residential, commercial, and retail space on Manhattan's West side in New York City, New York, U.S., May 26, 2019.
The Wealth Effect: Big Spending Draws Attention as Poor Struggle
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Former Pink Floyd musician David Gilmour sold his guitar collection last month for $21.5 million at an auction to raise money for needy organizations. The collection included his well-known “Black Strat” Fender Stratocaster. It was sold for nearly $4 million to the owner of a U.S. National Football League team.

The sale set a musical instrument record. It came just a few weeks after the company Sotheby’s sold “Meules,” a painting by Claude Monet, for $110 million: a record price for an Impressionist painting.

And it is not just instruments and paintings that are being bought by rich people around the world.

US in longest economic expansion

The longest U.S. economic expansion in history has brought news of big spending. It also has raised concerns about the distance between the rich and everyone else. For some people, the high price of some goods is a sign of too much wealth.

The bank UBS says the number of billionaires in the United States has increased from 267 in 2008 to 607 in 2018.

“The rich have gotten richer and they’ve gotten richer faster,” said John Mathews. He is the head of Private Wealth Management and Ultra High Net Worth at UBS Global Wealth Management.

But there are signs of problems at lower-income levels. Information from the U.S. central bank suggests that, by 2016, the richest 20 percent of Americans held 88 percent of the country’s wealth.

The federal government says that more than 39 million people need to use food assistance programs. That is not as many as the high of over 47 million in 2013. But still, it is up 40 percent from 2008. At the same time, the country’s population has only grown about eight percent.

The U.S. economy has expanded a record-setting 121 months. That means the economy has been growing continuously for over ten years.

And it has been more than 10 years since the financial crisis of 2007-2008. At that time, some people worried about the future of the financial system and even of capitalism. As a result, the U.S. government moved quickly to calm markets and lower interest rates after the U.S. housing market collapsed.

But many people are concerned that efforts at that time did little to deal with income and wealth inequality.

The Wealth Effect

Now some worry that high costs and overspending could lead to another kind of financial crisis. The term, the wealth effect, is sometimes used to describe how people spend more freely when they have a lot of money.

The examples of higher prices or values are big and small.

The cost of a dinner at the French Laundry, a popular California restaurant, is up 35% to $325 per person.

The U.S. stock market has gone up more than 200 percent in the last 10 years.

Investor Ken Griffin set a record in January when he bought a home for $238 million near New York’s Central Park.

The website says rents in New York have risen two times faster than pay from 2010-2017. This can make it hard for lower-income people to find a place to live. U.S. home prices are higher than they were during the financial crisis. The group, Coalition for the Homeless, says the number of people sleeping in shelters is 70% higher than it was 10 years ago.

“The housing opportunity for them is not getting any better,” said Carolyn Valli. She is CEO at Central Berkshire Habitat For Humanity, in Pittsfield, Massachusetts. The organization builds houses for the poor. She said high healthcare costs and a lack of large employers mean fewer jobs in some areas. Food and housing costs remain high.

Some economic policymakers worry that the gains made by low-income people in the last 10 years will be lost.

Employment, however, remains strong. The Bureau of Labor Statistics reported the most recent unemployment rate at 3.6 percent for May. That is one of the lowest rates of unemployment in U.S. history.

Federal Reserve Chairman Jerome Powell said recently: “Many people who in the past struggled to stay in the workforce are now getting an opportunity.” He added it was important to keep the economic expansion going.

I’m Susan Shand.

The Reuters News Agency reported this story. Susan Shand adapted it for VOA Learning English. Mario Ritter Jr. was the editor.

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Words in This Story

guitar – n. a musical instrument that is held against the front of your body and that has usually six strings which are played with your fingers or with a pick

auction – n. a public sale at which things are sold to the people who offer to pay the most

income – n. money that is earned from work, investments, business,

rent – n. money that you pay in return for being able to use property and especially to live in an apartment,

opportunity – n. an amount of time or a situation in which something can be done

utility n. a service (such as a supply of electricity or water) that is provided to the public