The graphic above is from Visual Capitalist.
I sincerely wish they had gone all the way back to 1970—the trend is even more pronounced.
This development concerns me because I don’t think it is consistent with an egalitarian society. Basically, we’re increasingly becoming a plutocracy with hereditary plutocrats, a large portion of the society largely dependent on government handouts, and a struggling middle class.
Interesting. I would be even more interested to know what form the wealth is taking. I would guess for the 50-90% group, the vast majority are retirement accounts and houses. Probably for the 90-99% too.
For the 50-90% it’s mostly houses. For the 90-99% much more is various financial instruments—stocks, bonds, etc.
You may or may not be aware that there is currently a major effort to undercut the argument that we really have significant inequality. It focuses entirely on income. Some of the arguments about what counts as income and how much are valid, though most fo the arguments cherry pick a lot. However, they virtually always ignore wealth. It’s not really clear how they manage to believe that we have very little income inequality but end up with huge wealth inequality. Magic?
Steve
@steve
… Magic?
Do you really believe Mark Zuckerberg has an income of $10 billion per year? Are you really that stupid? Don’t answer.
@Drew
I did not chime in on your “financialization” comments. I am tired of writing about monetary issues and the problems they cause.
“Financialization” is real, but almost everybody that uses the word has no idea what it is. It would be better called securitization, but it is about money creation using the financial system. I mean creating money not ROI. By-the-way, the government is at it, as well.
I do not like it, but manufacturing is not coming back anytime soon. Americans refuse anything dangerous and dirty, no matter how small the risks. Every product starts with some raw materials that are dirty and dangerous to extract, refine, and transport.
Anyway, you all can fight amongst yourselves.
I agree that has been the trend. If it remains the trend, American society will evolve into an upper class who are living by buying and selling assets and a large lower class primarily dependent on the dole.
Tasty- Nope, but I just watched a lecture by a Republican economist claiming that income inequality really isn’t an issue since the average income in the top quintile is about $200,000. It appears to be part of the effort to “prove” that inequality doesnt really exist or it isn’t as bad as claimed. Somehow people like Zuckerberg are earning low 6 figures and ending up with billions of dollars. Since I am sure he isn’t lying it must be magic.
Drew will probably be busy trying on his new Trump sneakers so dont really expect him to answer.
Steve
Although steve and I are in agreement that the significant differences in income and wealth are problematic, we differ in our concerns. steve only appears concerned about the top .1%. Not only do I think the top 1% are equally a problem but I would include the entire top decile and the graph at the top of this post illustrates why.
I think the entire top decile derives too much of their income and wealth from rent-seeking.
There is some rent seeking, however, in general the people making say $100k-$400k would also be making pretty decent pay elsewhere in the world. They dont wield the kind of influence that people worth billions have, plus rent seeking is common in the top 0.1% to say nothing of money and policy directed in their favor.
If someone develops a product, gets rich and that’s it we largely dont care. But what really happens is that all too often they use that wealth to influence our politics and buy favors , to avoid the consequences of illegal/immoral activity, to buy the way for family and friends to succeed. How many in that 1% vs the 0.1% could buy their friend a luxury motor home or pay for private school? Look, if I want I can get a bunch of fellow docs together, promise a donation and meet with our Congressperson for 30 minutes. If I am a billionaire I can finance entire campaigns.
Steve
That’s my point.
Examples, please. I think it’s actually far rarer among the .1% than you seem to think and a lot more common among the 90%-99.9%.
That’s definitely happening among the 1%, cf. Hunter Biden.
That’s exactly right. Relatively few docs are in the top .1% of income earners but a lot are in the top 1% and practically all are in the top decile. In Chicago a teacher married to a firefighter will be in the top decile of households for income. 100% of their income is derived from rent-seeking. Can anyone doubt that the present mayor of Chicago was elected expressly to give the CTU anything they asked for in upcoming contract negotiations?
@steve
I told you not to answer, but now you have proved your stupidity. There is a saying about people thinking you are stupid.
Since the political pundits you parrot know nothing about the monetary and financial systems, you know nothing, and just because your political enemies spout nonsense, their stupidity does not somehow cancel out your stupidity.
Income inequality is not the problem, but if you insist on parroting idiots, you are part of the problem. The only income inequality problem is a bunch of rich people being jealous of even richer people.
Actually, the income inequality problem was solved with Clinton’s Millionaire Tax, but when idiots devise a plan, the solution worsens the problem. So, the distortions caused by the Millionaire Tax created wealth inequality, but since these distortions were “juicing” the economy, nobody cared.
The Dot Com bust was proof that unrealized gains were not real, but that lesson is rarely learned. When it is learned, it is shortly forgotten.
Now, your cohort of jealous rich people lead by the political pundit idiots are going to solve the wealth inequality problem. You claim that these people you are going to tax can “influence our politics and buy favors”. Sounds like a Wile E. Coyote plan.
Here is the reality: There is not enough money to create the world you dream is possible. The only way to create that amount of money is to allow the richest to become even richer. Their wealth is the result of the Modern Monetary System (MMS), but the MMS makes it possible for the government to rack up trillions dollars in debt.
Actually, I think you have the equation backwards. It is not the rich people that can “influence our politics and buy favors”. It is the politicians that influence our financial system and buy favors. When Senator Dodd and Rep. Frank had the chance to fix the problems, they chose to make them worse.
Now, let me help you out: The MMS is based on the bond market, and bonds and bond-like securities create money. (The Fed is helpless.) If you increase regulations, money is destroyed, not created. So, the money needed for all the government programs does not exist.
If you try to tax the bond market into submission, those rich people you hate will create enough money to pay the taxes, and your jealousy will continue. But, you will quickly learn that Professor Kelton did not do all her homework. MMT only works when the conditions are conducive for those rich meanies to create the money that fuels your jealousy.
Oh yeah, try implementing the Green Agenda without a cooperative bond market.
I will “throw you a bone”. Inflation is not a monetary phenomenon. When your political enemies claim inflation is out-of-control, point out that M2 has been decreasing, precipitously. They will be as ignorant as you, but you can throw in some important sounding words. Hell, you might get a NYT column or a Nobel Prize.
Hey people. I just got these new sneakers. Boy are they swell…….
Look at the proportions of income of the 50-90%, and the 90-99%. Same proportions in 1990 and now. You are really talking about the bottom half and the very, very rich. The very rich have always been there, and always will. But they are by definition small. The usual nostrums like confiscatory tax rates and wealth taxes wouldn’t fund the government but for a few weeks.
In a competitive society I’ve concluded you are always going to have the very productive, talented, adaptable, persevering who will do better than the bottom half. Especially as you move from an agrarian and then relatively simple labor driven economy to our current one. I don’t know what you do about that. The returns to knowledge and skill cannot be defied. I don’t know how you help the bottom half by harming the top half without wrecking an economy. You can simply siphon off a certain amount of income to redistribute in an effort to have a civil society. But you risk overall sluggishness, and creating a class of national pets.
Tasty – a technical point. I think you really mean a rapidly growing money supply used to fund debt spending. Not securitization. Securitization is taking existing securities (heh) that have rights to cash flows and slicing and dicing them, and repackaging them into new securities with different objectives. One can debate the worthiness of that. A perfect example of securitization was all the silly observations about how institutions were completely blind sided (or evil) by mortgage related securities and the underlying “poor” credit quality. What a bunch of idiots!, it was said. And yet many of those were in fact safe because they had been sliced and diced in a way that warranted the AAA rating they had. It was the commentators who missed the boat.
Did you stop taking your meds? It’s just math. (I have no idea where Green Agenda which I have never referenced came from.) The claim by some people on the right is that income inequality is minimal, yet wealth inequality is huge. How do you become wealthy with no income? One day you are making just a bit more than everyone else and then the next day you are worth billions. Magic. (Or maybe we have other names for rich people’s income.)
Steve
@Drew
I do mean securitization.
In a well regulated financial system, it would work like you describe, but that does not achieve the goals of politicians. It took me a while, but I finally got it.
As it has been done for the last 20 years, securitization allows questionable borrowers to obtain low quality loans. The borrowers get things they want. The economy increases, and politicians get more money from taxes. Everybody is happy, except for TastyBits.
Unfortunately, politicians are greedy.
They are jealous of people richer than them, but ones like Dodd and Frank know that they need money creation, not confiscation. (Publically, they shout about raising taxes, and privately, they provide tax breaks/incentives.)
Financialization gets confused with finance. The problem is creating money and money-like products that are no better than imported garbage. Securitization is not the only problem, but it is a large portion. I think it is a better description, but I am open to suggestions.
Whatever you want to call it, we are here, and things are only going to get worse. Electrifying everything will cost more than today’s idiots can imagine. About halfway through, they will discover it is not possible, and it will require more money to fix.
Politicians will relax more financial regulations, and beg for more low quality loans to be created. Rinse and repeat.
@steve
Honestly, how dense are you?
I have no idea of who are these “people on the right”, and I do not care. My guess is that they are as dense as you.
Massive wealth is not created by saving 30% of one’s income. Smart investing of that 30% might make you wealthy, and really smart investing might make you really wealthy.
You would do better claiming “compensation inequality”, but then, you will start claiming “investing ability inequality”. See, you still need to invest wisely.
As have all the political pundits you believe, you all have taken your enormous salary and pissed it away or invested unwisely. Now, you all are jealous of people who are richer than you.
(NEWSFLASH: Nobody at my level or lower considers any of you our hero. We think that you, @Drew, Zuckerberg, and Buffet are the same. The differences are what and what to us. We are just trying to get by without assholes, like you, @Drew, Zuckerberg, or Buffet, making our life worse.)
At one time, the top people were paid large incomes, but with the ill-conceived Clinton Millionaire Tax, companies stopped paying large incomes. But, a funny thing happened on the way to nirvana. People began getting compensated in new and innovative ways.
These new and innovative ways of compensation were not bad in and of themselves, but they lead to bad practices. These bad practices lead to even worse practices, but they caused the economy to boom.
So, income inequality was solved, but the economy was set on a bad path. Unfortunately, an idiot’s work is never done. With a booming economy, the Clinton idiots united with the Republican idiots to remove the last speed bump to endless money creation.
The Clinton idiots were ecstatic about the chance to lessen the wealth gap by getting everybody their own house. The Republican idiots were ecstatic about the money to be made. Once most manufacturing was shipped to China, creating money was the major economic activity.
Then, the inevitable happened, but for the politicians, not enough money had been created. No, not nearly enough. So, the government got in on the act, but contrary to popular belief, there is a limit – specifically, the bond market.
Unless you plan on physical money, the truth is that you need them more than they need you – a lot more. The world you dream about (Green Agenda, Zero Carbon, electrification, or whatever) will require more money than you can imagine, and somebody needs to create it.
So, the politicians will scream and rant out loud, but quietly, they will encourage the creation of new money, by any means necessary. Do you ever wonder why caustic lending is not regulated out of existence?
Rather than pretending you all are the poor man’s hero, you should redirect your jealousy and hate towards creating something. I am holding my breath.
Just for the record I, personally, am jealous of no one. It is an observed fact that when people use the phrase “the rich” there is a strong tendency to mean the people one step above them on the income ladder. For the truly poor “the rich” means anybody who isn’t poor; for people of median income it means those in the top quintile; for people in the top 1% of income earners it means those in the top .1%. I would reserve the description “the ultra-rich” for them. I’m not as negative about “the ultra-rich” as steve seems to be—I think quite a few of them became ultra-rich on their own steam and stay ultra-rich the same way. Example: Jeff Bezos. Maybe there are examples of his using his wealth to become wealthier through political pull but I don’t know of any.
I don’t envy the ultra-rich and I wouldn’t even want to ultra-rich. I am concerned about being impoverished in my old age by having everything I’ve worked and saved for over an entire career taxed away to make some politician feel better about themselves. Or, worse, rich.
I’ve been pretty consistent about who I think the rich are: the top decile which includes me, steve, Drew, the mayor, the City Council, the president, and members of Congress not to mention Chicago firefighters, and police officers (they average in six figures with overtime).
Its hard to debate when the issue is definitional.
https://www.imf.org/external/pubs/ft/fandd/2008/09/pdf/basics.pdf
During the process of securitization there is only one set of cash flows, although the original securities and the rights to their underlying cash flows get transformed.
I share your concerns over credit creation and standards. In the government sector we of course see deficit spending monetized by the Fed. In the private sector we simply see credit standards go down. A form of undercapitalization with equity really. The worst result is the socialization of credit losses.
@Drew
That is exactly what I mean, and the link has exactly what I think is the problem. It is in the private sector, but the environment was created, enabled, and encouraged by politicians. In and of itself, securitization is not bad.
I have a long list of what I think is wrong, and I would place de-industrializing ahead of securitization. Both have been done intentionally by Democrat and Republican politicians.
“…I would place de-industrializing ahead of securitization….”
You bet. “Financialization” is just a scapegoat for piss poor industrial attentiveness and whacko environmentalist policy.
And never forget. Cheap goods from China are like crack: in the short run they assist the lower 50% with better purchasing power. In the long run they destroy the lower 50%. Its sadistic. But it serves politician’s needs.
Once again. Wanna know why I want to minimize government? – and no, I’m not an anarcho-capitalist, Dave – this is it. Its a day 1 fundamentally flawed solution. Destined to fail and cause more harm than it fixes. Sounds good on paper. A shit show in practice. At least as practiced here in the US. Its pure folly.