Family Dollar's Store Closings Shine Light on Income Inequality

NEW YORK (TheStreet) -- Family Dollar Stores (FDO) decision to close stores and downsize illustrates the problem that has hurt the markets this week.

Lack of demand.

A Democratic president has produced a Republican economy. Pew Research reported early this year that 40% of Americans now say they are lower or lower-middle class, while 44% claim to be middle class. In 2008, only 25% said they were lower or lower-middle class, and 53% said they were middle class. 

Groups such as the Council on Foreign Relations have been producing charts on U.S. income inequality for years. When Walmart (WMT) pays a low wage, it doesn't produce a workforce that can buy much at Walmart. When the Koch brothers agitate to keep budgets tight and public spending low, consumers can't afford their Georgia-Pacific toilet paper.

This recovery has been built almost exclusively on monetary policy, which gives money to banks, not to people. Banks aren't charitable institutions. They lend money only to people who will pay it back, with interest.

The federal government's stimulus package in 2009 helped get the economy back on its feet, but the economy remains sick. Since 2010, the annual budget deficit has been cut by more than half. Republicans may not want to admit it, but they have been winning the policy argument.

The economy will remain sick until consumers have money to spend. If the private sector won't give them that money and the public sector won't give them that money, things are going to continue as they are.

The stock market woke up to that reality this week.

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