I have a number of problems with this piece at MarketWatch about increasing wealth inequality in the United States but here’s my biggest disagreement:
“So in some sense the source of higher inequality is Fed policies, which pushed stock prices and home prices higher. But the lack of changes in redistribution by fiscal policy is also playing a role,†Sløk said
The first clause in that sentence is something I strongly agree with. The primary cause of inequality in wealth in the United States is Federal Reserve policy.
But the second clause is grossly misleading. What conceivable fiscal policy would lead to a redistribution of wealth? At the very best (or worst depending on how you look at it) different fiscal policy would be immeasurably more likely to result in a redistribution of income rather than a redistribution of wealth.
The article fails to emphasize sufficiently the reasons for increasing inequality in wealth which are overwhelmingly enormous housing prices in certain parts of the country, the increase in the stock market, and a very low savings rate.
In case you start scrambling around for it to be in the top 10% of holders of wealth you’ve got to have a net worth of $1.5 million. I’d be willing to bet a shiny new time that most of the wealth of that top 10% is held in the form of their houses.
I’m also skeptical that redistribution of income is a leveler but that’s a completely different subject. At least in the United States redistribution tends either to be from the relatively poor to the relatively rich, e.g. the role that FICA plays in the budget, or from one group of the relatively rich or rich to a different group of the relatively rich or rich. I’d be interested in some proof to the contrary.
Finally, making the rich poorer without making the rest of us richer would be a leveling but I’m not sure that’s a direction in which we should go.
This has been an interest of mine for a long time, and IMHO the answer is that caste systems are natural in human societies. The upper caste proactively pursues position, the lower passively avoids it. I think we are all subconsciously aware of where we belong and are uncomfortable out side of our social position.
None of this applies to criminals,who reject the entire system and can grow quite rich outside of it.
It would explain why it does little good to send children of the poor to college while their manner belies their degree.
I think poor people can grow quite rich through work and thrift yet never change their or their families status.
If the question is, can any tax legislation or wealth redistribution schemes change that, the answer is no.
Possibly an attack on the natural system, as with racism, through education and other propaganda would be useful, but I doubt it.
” The primary cause of inequality in wealth in the United States is Federal Reserve policy.”
But we see the same thing happening in other countries, especially those derived from the British Empire. I think it is more of a cultural thing with the Fed playing a supporting role. Unless the Fed is also secretly setting policy everywhere else.
Steve
In the old Soviet Union the “upper class” were Party Members, who shopped at different stores than the riff-raff, had private Dachas unavailable to the general public. And this in a society supposedly FORMED to create “equality”.
No but there is a consensus among central bankers. For people to act in lockstep doesn’t require a conspiracy, just a consensus about what should be done.
” just a consensus about what should be done.”
So like I said there was a change in culture. Everyone ended up the same place in slightly different ways. The Fed was a tool used in the US. Suppose the US corporate culture didnt prioritize short term results and enriching management over growth and business investment. Would we end up with the same level of inequality even with the Fed in action? I dont.
Steve
Do you refer to the standard of care as cultural? I guess it is but that’s not usually something I would characterize that way.
If you’re looking for someone to defend management practices at big companies, you’re talking to the wrong guy. I think top management at many big companies these days is godawful and self-serving. Guarneri lambasts me all of the time for saying that.
Gray, wonderful, spot-on posts!
I agree that people tend to languish in or plow ahead given their own strengths, interests and natural affinity for certain comfort zones. If you try to artificially equalize the playing field, tinkering with distribution of wealth schemes, inoculating the culture with entitlement dreams and dependence on an all powerful government, social, work habits and personal accountability are weakened. Once this happens, the socialist model easily becomes embedded, with a multitude of dependent minions being controlled by a few elites, having little to no oversight as to whose pockets the bulk of the country’s wealth flows into
Well, no lambasting today. I think it’s an overly cynical view, although “many†is probably accurate, but still a minority. But that’s for another time.
I find myself in very close agreement with Daves various points here. I wish I were King and could rectify Fed policy. But alas…
The only point I would make is really just a technical one. Maybe it’s just me, but I am shocked it takes only $1.5mm to be in the top 10%. It’s probably true that the top 10% would have most of that tied up in their homes. But it’s scary; not much liquid net worth. And it’s a negative yielding asset. They are overinvested in RE. IMHO. I have a $3.5mm, two home footprint in RE. And let’s just say that’s 15-25% of total, plus or minus. I think that’s a much more prudent approach. Thought experiment. What do you think I would do upon institution of a wealth tax?
To be in the top 1% of holders of wealth requires a net worth of $10 million or greater.
The only other observation I have, back to the topic of the post, is that if the entire Kennedy Family Trust were confiscated and the proceeds given to the homeless it would do practically nothing to change the distribution of wealth. That’s because those proceeds would be realized by the homeless as income and they would not be likely to save their share.
Not only are they not likely to save, but I’m sure we have all seen those calculations showing you could confiscate 100% etc etc. it’s folly, although emotionally satisfying to some and a vote getter for politicians.
On a related note, I have seen a decided trend in advocacy advertising encouraging people to go into the trades. It’s mostly unions, but at least someone is waking up.
“if the entire Kennedy Family Trust were confiscated and the proceeds given to the homeless it would do practically nothing to change the distribution of wealth.”
You are only looking at first order effects. The wealthy now have so much money that they can control everything at a level not seen in a long time (probably not since royalty was the norm) including our media and our politics. Having such a small group of people making all of our major decisions and for the benefit of this same small group of people cannot be good for growth and not good for everyone else.
Steve