Most of us are aware that a significant – and growing – portion of our society lives paycheck to paycheck. Drive near a military base, or many a downtown neighborhood, and you’ll see payday lenders cheek by jowl. If any little thing goes wrong, people end giving up their next paycheck to meet the expense, and then, unless they can earn some additional money quickly to make up the difference, they and their families find themselves in a rapid downhill financial – and life – spiral. And if not having one’s next full paycheck was not enough, interest rates are exhorbitant.

The recent financial turmoil may reveal another layer of society that might become quite sympathetic to the payday borrower. There are people who live, not paycheck to paycheck, but bonus to bonus. Each winter, they have come to expect a bonus check from their employer, which might vary from 50% of their base salary to many – many – times that base salary. After a few years of this, it becomes very tempting to start to rely on those annual checks, and to take on mortgages or other commitments (e.g., private school tuition, second homes, expensive cars) that get funded from those annual checks.

Now many of those people – at least the ones in the Wall Street financial firms, if not those in the law firms that serve them – are finding themselves wondering whether they even have a job, much less can expect a bonus in January. We can expect articles in the NYT detailing some of their woes, just as many articles in recent years have been devoted to the issues of choosing and maintaining a vacation home, as if they were quite the norm.

The federal government issued stimulus checks to a broad swathe of taxpayers earlier in the year, without much obvious effect. What sort of stimulus checks will be needed to make it possible for the “bonus-based reality” crowd to spend as they normally do? Will we borrow to do it?

Income is concentrated, as Piketty and Saez’s data show. Excluding capital gains***** (a not inconsiderable exclusion), the top 10% of the income spectrum – those with incomes over $100,626, excluding CG – garnered 45.3% of the income in 2006. (P&S spreadsheet, Tables A1 and A4.) In other words, the bottom 90% of us got only 54.7% of the income. But 18.24% of the income went to the top 1% of us. If their income drops by a few percent, without that income being shared more broadly among the other 99%, the ripple effects are going to be awesome. The luxury goods whose sales prompt advertisers to spend millions – billions – on advertising in the hundreds of glossy magazines are going to have less demand, at least from within the US. (Foreign demand may well increase – see “wealth transfer overseas,” in an earlier post.)

*****If we include capital gains in the distribution, then in 2006, the top 10% of us – those with incomes over$104,696, including CG – received 49.66% of the income, and the other 90% of us received 50.34%; the top 1% received 22.9% of the income. [P&S, Tables A3 and A6]

Wealth is even more concentrated. The top 1% of us have 33.38%; the top 10% have … are you ready? … 69.50%, leaving the other 90% of us with 10.5%. [Data here; see Table W50-2.]

And every Fourth of July, we celebrate the self-evidentness of the notion that we are all created equal, and that we live in a nation dedicated to life, liberty, and the pursuit of happiness for all. So it should be interesting to see what sort of safety net our children are asked to finance for those who live bonus to bonus. That is the real trickle down. And we can be reasonably confident that it will be couched in terms of protecting “Main Street” – and that it will play a large role in the 2008 presidential election.

And if you’ve been reading this blog for a while, you know I know there is an alternative that we need to shift to, if we are ever going to begin to solve these problems.