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

04. January 2004 · Comments Off on Do the rich really need the breaks? · Categories: Economics, Politics, Social/Culture · Tags: , ,

Here’s something I’ve heared a hundred times… “…Yeah, but the rich pay way more taxes than anyone else…” Words dispensed as indisputable evidence that the rich deserve the tax breaks being delivered by the Bush administration. Of course they’re talking about income tax and it’s true, the rich have been paying more income tax, but is that unfair? Maybe we need to look at the bigger picture.

Here’s another quote…

“Ultimately, we are interested in the question of relative standards of living and economic well-being. We need to examine trends in the distribution of wealth, which, more fundamentally than earnings or income, represents a measure of the ability of households to consume.”– Alan Greenspan.

Ah, so now we start to see two different measurements, income and wealth. A little more research and I discovered that compared to income, wealth is hardly taxed at all. This reveals a huge blindspot in the “rich need breaks” perception. But it’s not until you start looking at the difference between the distribution of income and the distribution of wealth that you really start to see the magnitude of the injustice.

These statistics were taken from the Survey of Consumer Finances sponsered by the Federal Reserve Board and ranks Americans by total wealth showing their share of national income and non-income wealth (investments etc…)

Income Wealth
Highest 20% 47.2% 84.3%
4th 20% 23.0% 10.8%
3rd 20% 15.7% 4.4%
2nd 20% 9.9% 1.0%
Lowest 20% 4.2% -.5%

Looking at these numbers, it’s easy to see that even if the rich do pay more taxes on income, which they do simply by virtue of having more income to tax, it still doesn’t have nearly the same impact on their relative standard of living and economic well-being as it does for the bottom 50% who can’t offset the discount on their income with accumulated wealth. In fact the bottom 20% are actually in debt, so not only do they have no money to offset the deductions on their income, but the taxes impede their ability to pay off their debt.

If Alan Greenspan is right and the more representative measure of our ability to consume is wealth not income, then it seems to me that wealth should be taxed more and income taxed less, that is, as long as we are insisting that we live in a society where everyone pulls their own weight.