26. January 2005 · Comments Off on Wealth Inequality · Categories: Economics, Politics, Social/Culture · Tags: , ,

One of the perspectives I’ve been exploring is the concentration of wealth, which seems to be the natural pattern that can take credit for just about every bloody revolution in history except for those started on religious grounds, the unifying theme of both religion and wealth being currency of power.

One place to start is to examine the current state of wealth distribution. Are we in fact clinging onto the steep walls of wealth inequality? There are plenty of statistics that suggest we are, but in this case I think the information needs to be visualized to really get a feel for the magnitude of the situation. The following chart summarizes the overall wealth inequality in the US as of 1998. I found this chart on a webpage offering the basic statistics of wealth inequality.
(income and wealth inequality)
at World Revolution.





(Share of national wealth by percentage of population. – Edward N. Wolff, “Recent Trends in Wealth Ownership, 1983-1998,” April 2000 (Original graph by Devesh Kumar))

This chart makes the isolation of the top 1% who’s average wealth is $10 million, blantantly obvious. According to the Federal Reserve, in 1990 the richest 1% of America owned 40 percent of the nation’s wealth, which not only exceeds the level of inequality in all other developed nations but it’s also the most drastic inequality in U.S. history since the eve of the Great Depression, which leads me to consider the next thing… the trend. Is our inequality static, or does it change? Is it getting better, or worse?

According World Revolution, in the fifteen years between 1983 and 1998, the bottom 40% of Americans saw their wealth drop by 76%. In the same time period, the richest 1% saw their wealth increase by 42%. Thomas Frank, in his book, One Market Under God, explains part of what caused this increase for the wealthy by describing the stock market as “the economic engine that has generally made the rich so very much richer than the rest of us, first through the bull market of the eighties, then through the bull market of the nineties.” This is because, despite how widely dispersed stock ownership has become in recent years, the vast majority of shares are still held by the wealthy. Lester Thurow, a conservative professor of economics, admitted during the dotcom bust that in the last four years of bull market, a full 86% of the market’s advances went to the wealthiest 10% of the population. Frank also describes the patterns that may explain the drop for the not-so-wealthy Americans. He points out that during the nineties, stock prices consistently rallied upon reports of decreasing wages, while reports of even marginal wage increases was enough to “send the Dow into terrible fits and faints.” Unfortunately, the gleaming promise of stock ownership for the workers, which amounted to a small percentage of the 14% of the market left over from the top 10%, wasn’t enough to offset the total loss of wages, which excluded many of them from the stock market anyway. So the boom of the nineties was about Wall Street, not Main Street.

(The average wealth of the bottom 40% of Americans $1,000.)

Indeed, The Levy Economics Institute concluded by the end of the 1990’s that “economic growth and prosperity no longer dramatically reduce[s] economic inequality.” Recognizing this, the institute continues to maintain an active research program on the distribution of earnings, income and wealth. Something else that this institute does is bring into question the condition of well-being, and really, this seems like a good thing to consider.

Does it really matter that people are getting filthy rich? After all, for many people, the top 1% represents the promise of hard work in America (we love rags to riches stories). There is also the non-zero-sum theory that is often used to excuse the wealthy from any liability based on the assumption that wealth can be accumulated without taking it away from others. There is even the perspective that the wealthy class is actually a source of income for the lower classes. Personally, I agree with these theories in principal but I don’t see them as being mutually exclusive with potential threat that concentrated wealth has on the well-being of people in the lower percentiles, especially when you consider the relativity of differing levels of wealth. If your investor gains 10% from a deal, it’s still a non-zero-sum deal, even if you gain as little as 1% for yourself, but if that 10% pulls inflation up by 5%, then your well-being can still suffer.

Finally, knowing that I am personally outside the bottom 40%, does it even matter to me that the lower 40% is getting poorer? For me it does for several reasons. First of all, I don’t think poverty should be tolerated in this day and age. Secondly, poverty for a few people can cause instability for more people and finally, I worry about what happens if wealth continues to concentrate in the top 1%. Will that 40% eventually turn into 60%? At some point will I be outpaced by the gravity well of wealth? Will it happen to my children if not me? Will the trend lead to economic collapse and/or revolution? Maybe it’s a fear of the unknown, but looking at the statistics and charts I can’t help but think… “hmmm, not good”.

More Info:

Unequality
Levy Economic Institute
World Revolution

03. February 2004 · Comments Off on Declining middle-class? Sell cheap in bulk · Categories: Social/Culture · Tags: , ,

Apple and Pepsi got a deal going where Pepsi drinkers may find codes in their Pepsi bottles for a free song download from the iTunes Music Store. Apple and Pepsi will be giving away 100 million songs during this promo zap, obviously aimed at the lucrative teenage music collectors. Pepsi kicked off it’s multimillion dollar ad campaign last super-bowl Sunday.

You may have noticed, there’s also a big deal going on in L.A. where lawyers from the entertainment industry are getting ready to rumble with the attorneys for Grokster and StreamCast in front of a three judge panel from the 9th Circuit Court of Appeals.

Interesting. The super-bowl Pepsi ad actually featured 20 teens who were sued by the Recording Industry Association of America (RIAA) for downloading music. I understand that these kids can pass around a lot of burn, but they spend their money too. I’m sure there are more kids buying CD’s than ever before and I bet most of them are downloading and burning too. I just can’t see how an entertainment industry, fat enough to spend millions on all these second rate artists, can slap 14 year old kids with $3,000 lawsuits. It’s kinda like the big school yard bully pushing around a little girl.

And like hell, ‘they’re loosing money’. What they’re loosing is ‘potential money’. Let’s at least get that straight.

So the recording industry needs to turn the peer-to-peer networks into an advantage. So lawsuits, lobbies and deals. Now we have 99 cent downloads for individual songs. Everyone wins, which is a good thing considering the inevitability of it all. This is the future of marketing. Sell lots and lots of cheap things. This is the way producers will continue to harvest money even after the middle-class has sunken to the lower rungs of jobless despair. When many of these teenagers get older and hungry it will be impossible to get $20 out of them, but you just may be able to suck out 99 cents, not a bad deal for an industry already switching out it’s tackle for smaller fish in much, larger quantities.

Apple-Pepsi Deal

Wired News on the P2P Case