Exploding Wealth Inequality in the United States

Yves here. This is a particularly important post on the state of inequality since Emanuel Saez, working with Thomas Piketty, was for over a decade tracking the rise in inequality in the US, particularly the way that the top 1% and 0.1% were pulling away from the rest of the population. Gabriel Zucman has made a recent important contribution to the analysis of wealth disparity by sizing the impact on global figures of the funds stashed in tax havens. A full 6% goes unrecorded, which by his estimates is enough to make the US less of a net debtor, Europe a net creditor, and of course, the rich in those regions even richer.

Saez and Zucman are particularly concerned that this level of wealth inequality is on its way to becoming entrenched.

By Emmanuel Saez, Professor of Economics, University of California Berkeley and Gabriel Zucman, Assistant Professor of Economics, London School of Economics. Originally published at VoxEU

Wealth inequality in the US has followed a U-shaped evolution over the last century – there was a substantial democratisation of wealth from the Great Depression to the late 1970s, followed by a sharp rise in wealth inequality. This column discusses new evidence on the concentration of wealth in the US. Growing wealth disparity is fuelled by increases in both income and saving rate inequalities between the haves and the have nots.

There is no dispute that income inequality has been on the rise in the US for the past four decades. The share of total income earned by the top 1% of families was less than 10% in the late 1970s, but now exceeds 20% as of the end of 2012 (Piketty and Saez 2003). A large portion of this increase is due to an upsurge in the labour incomes earned by senior company executives and successful entrepreneurs. But is the rise in US economic inequality purely a matter of rising labour compensation at the top, or did wealth inequality rise as well?

Before we answer that question (hint: the answer is a definitive yes, as we will demonstrate below) we need to define what we mean by wealth. Wealth is the stock of all the assets people own, including their homes, pension saving, and bank accounts, minus all debts. Wealth can be self-made out of work and saving, but it can also be inherited. Unfortunately, there is much less data available on wealth in the US than there is on income. Income tax data exists since 1913 – the first year the country collected federal income tax – but there is no comparable tax on wealth to provide information on the distribution of assets. Currently available measures of wealth inequality rely either on surveys (the Survey of Consumer Finances of the Federal Reserve Board), on estate tax return data (Kopczuk and Saez 2004), or on lists of wealthy individuals, such as the Forbes 400 list of wealthiest Americans.

In our new working paper (Saez and Zucman 2014), we try to measure wealth in another way. We use comprehensive data on capital income – such as dividends, interest, rents, and business profits – that is reported on individual income tax returns since 1913. We then capitalise this income so that it matches the amount of wealth recorded in the Federal Reserve’s Flow of Funds, the national balance sheets that measure aggregate wealth of US families. In this way we obtain annual estimates of US wealth inequality stretching back a century.

Wealth inequality, it turns out, has followed a spectacular U-shaped evolution over the past 100 years. From the Great Depression in the 1930s through the late 1970s there was a substantial democratisation of wealth. The trend then inverted, with the share of total household wealth owned by the top 0.1% increasing to 22% in 2012 from 7% in the late 1970s (see Figure 1). The top 0.1% includes 160,000 families with total net assets of more than $20 million in 2012.

Figure 1. The return of the Roaring Twenties

saezfig1

Notes: The figure plots wealth share owned by the top .1% richest families in the US from 1913 to 2012. Wealth is total assets (including real estate and funded pension wealth) net of all debts. Wealth excludes the present value of future government transfers (such as Social Security or Medicare benefits).

Source: Saez and Zucman (2014).

Figure 1 shows that wealth inequality has exploded in the US over the past four decades. The share of wealth held by the top 0.1% of families is now almost as high as in the late 1920s, when The Great Gatsby defined an era that rested on the inherited fortunes of the robber barons of the Gilded Age.

In recent decades, only a tiny fraction of the population saw its wealth share grow. While the wealth share of the top 0.1% increased a lot in recent decades, that of the next 0.9% (families between the top 1% and the top 0.1%) did not. And the share of total wealth of the “merely rich” – families who fall in the top 10% but are not wealthy enough to be counted among the top 1% – actually decreased slightly over the past four decades. In other words, family fortunes of $20 million or more grew much faster than those of only a few millions.

The flip side of these trends at the top of the wealth ladder is the erosion of wealth among the middle class and the poor. There is a widespread public view across American society that a key structural change in the US economy since the 1920s is the rise of middle-class wealth, in particular because of the development of pensions and the rise in home ownership rates. But our results show that while the share of wealth of the bottom 90% of families did gradually increase from 15% in the 1920s to a peak of 36% in the mid-1980s, it then dramatically declined. By 2012, the bottom 90% collectively owns only 23% of total US wealth, about as much as in 1940 (see Figure 2).

Figure 2. The rise and fall of middle-class wealth

saezfig2

Notes: The figure plots wealth share owned by the bottom 90% poorest families in the US from 1917 to 2012. Wealth is total assets (including real estate and funded pension wealth) net of all debts. Wealth excludes the present value of future government transfers (such as Social Security or Medicare benefits).

Source: Saez and Zucman (2014).

The growing indebtedness of most Americans is the main reason behind the erosion of the wealth share of the bottom 90% of families. Many middle-class families own homes and have pensions, but too many of these families also have much higher mortgages to repay and much higher consumer credit and student loans to service than before (Mian and Sufi 2014). For a time, rising indebtedness was compensated by the increase in the market value of the assets of middle-class families. The average wealth of bottom 90% of families jumped during the stock-market bubble of the late 1990s and the housing bubble of the early 2000s. But it then collapsed during and after the Great Recession of 2007–2009 (see Figure 3).

Figure 3. The new wealth divide in the US

saezfig3

Notes: The figure depicts the average real wealth of bottom 90% of families (right y-axis) and top 1% families (left y-axis) from 1946 to 2012. The scales differ by a factor 100 to reflect the fact that top 1% of families are 100 times richer than the bottom 90% of families. Wealth is expressed in constant 2010 US dollars, using the GDP deflator.

Source: Saez and Zucman (2014).

Since the housing and financial crises of the late 2000s there has been no recovery in the wealth of the middle class and the poor. The average wealth of the bottom 90% of families is equal to $80,000 in 2012 – the same level as in 1986. In contrast, the average wealth for the top 1% more than tripled between 1980 and 2012. In 2012, the wealth of the top 1% increased almost back to its peak level of 2007. The Great Recession looks only like a small bump along an upward trajectory.

How can we explain the growing disparity in American wealth? The answer is that the combination of higher income inequality alongside a growing disparity in the ability to save for most Americans is fuelling the explosion in wealth inequality. For the bottom 90% of families, real wage gains (after factoring in inflation) were very limited over the past three decades, but for their counterparts in the top 1% real wages grew fast. In addition, the saving rate of middle-class and lower-class families collapsed over the same period while it remained substantial at the top. Today, the top 1% families save about 35% of their income, while the bottom 90% families save about zero (Saez and Zucman 2014).

The Implications of Rising Wealth Inequality and Possible Remedies

If income inequality stays high and if the saving rate of the bottom 90% of families remains low then wealth disparity will keep increasing. Ten or 20 years from now, all the gains in wealth democratisation achieved during the New Deal and the post-war decades could be lost. While the rich would be extremely rich, ordinary families would own next to nothing, with debts almost as high as their assets. Paris School of Economics professor Thomas Piketty warns that inherited wealth could become the defining line between the haves and the have-nots in the 21st century (Piketty 2014). This provocative prediction hit a nerve in the US this year when Piketty’s book Capital in the 21st Century became a national best seller because it outlined a direct threat to the cherished American ideals of meritocracy and opportunity.

What should be done to avoid this dystopian future? We need policies that reduce the concentration of wealth, prevent the transformation of self-made wealth into inherited fortunes, and encourage savings among the middle class. First, current preferential tax rates on capital income compared to wage income are hard to defend in light of the rise of wealth inequality and the very high savings rate of the wealthy. Second, estate taxation is the most direct tool to prevent self-made fortunes from becoming inherited wealth – the least justifiable form of inequality in the American meritocratic ideal. Progressive estate and income taxation were the key tools that reduced the concentration of wealth after the Great Depression (Piketty and Saez 2003, Kopczuk and Saez 2004). The same proven tools are needed again today.

There are a number of specific policy reforms needed to rebuild middle-class wealth. A combination of prudent financial regulation to rein in predatory lending, incentives to help people save – nudges have been shown to be very effective in the case of 401(k) pensions (Thaler and Sunstein 2008) – and more generally steps to boost the wages of the bottom 90% of workers are needed so that ordinary families can afford to save.

One final reform also needs to be on the policymaking agenda – the collection of better data on wealth in the US. Despite our best efforts to build wealth inequality data, we want to stress that the US is lagging behind in terms of the quality of its wealth and saving data. It would be relatively easy for the US Treasury to collect more information – in particular balances on 401(k) and bank accounts – on top of what it already collects to administer the federal income tax. This information could help enforce the collection of current taxes more effectively and would be invaluable for obtaining more precise estimates of the joint distributions of income, wealth, saving, and consumption. Such information is needed to illuminate the public debate on economic inequality. It is also required to evaluate and implement alternative forms of taxation, such as progressive wealth or consumption taxes, in order to achieve broad-based and sustainable economic growth.

Please see original post for references.

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88 comments

  1. scott

    Once again, no mention of financialization and money supply growth after ending gold-dollar convertibility in 1971 (a necessary condition for financialization). The financial economy can appear to be “creating wealth” when that income is borrowed, but eventually all that money creation returns as inflation, even if the government must continue to lie and tell you it’s not.
    One must remember that in the early ’30s, the Bolshevik revolution was only 15 years old, and a violent end to capitalism was a real threat. To the very rich, higher income and inheritance taxes were preferable to a bullet in the back of the head.

    1. digi_owl

      The inflation actually happened during the lending. All the the central bank ends up doing is swapping implied money with real money so as to avoid a deflation (something that is downright lethal for debtor, while inflation is a “nuisance” to creditors).

  2. diptherio

    Progressive estate and income taxation were the key tools that reduced the concentration of wealth chance of out-right revolution after the Great Depression.

    There, fixed it for ya.

    A combination of prudent financial regulation to rein in predatory lending, incentives to help people save – nudges have been shown to be very effective in the case of 401(k) pensions (Thaler and Sunstein 2008) – and more generally steps to boost the wages of the bottom 90% of workers are needed so that ordinary families can afford to save.

    Let’s be clear: 1) predatory lending will exist so long as there are people struggling to make ends meet; 2) incentives to save are meaningless when people are struggling to just pay the bills every month; 3) if that savings takes the form of investments in the Wall Street casino, that should hardly be counted as a good thing; 4) boosting wages is the answer–probably in combination with a Universal Basic Income…but that ain’t never gonna happen until we extract our governance systems from the clutches of Wall Street. Good luck with that….

  3. Dan

    Let’s inject a little bit of logic here. The promise of America is a fair start, an equal opportunity, but not a guarantee of an equal outcome. Now we can debate whether or not there are fair starts/opportunities for everyone, but seeking to equalize outcomes is, well, decidedly un-American. There are countries that have attempted to create equal outcomes over time, and over history, but we’ve seen how well they have fared.

    The “rise of inequality” argument seems to disregard three critical elements:
    1. there is no guarantee, nor any promise, of equal outcomes in our society, nor in life in general
    2. the “disparity” in how hard the wealthiest (compared to the poorest) work, has never been greater. today’s wealthiest families have dual income, dual tertiary-degreed backgrounds and each often work in excess of 50-80 hours a week. on the other end of the spectrum, the poorest tend to, well, not work, right? but compounding the issue, they can be in broken homes with single parents.
    3. government efforts to “level the playing field” end up becoming a lottery – because the government cannot allocate infinite resources, eventually even the resource redistribution itself will become tainted and the managers of that process will be the “new” 1%, as we saw in Russia, China and NoKo.

    1. Yves Smith Post author

      You completely ignore that the returns to capital versus labor are determined by tax policy (taxes for private equity barons at below labor rates of taxes for what is labor income), anti-trust (the abject failure to break up monopolies and oligopolies), wage stealing and anti-competitive labor practices from WalMart to the top of Silicon Valley, socialism for the rich, ranging from bank bailouts (when banks are already so heavily subsidized they can hardly be called private businesses), the transfer to Big Pharma and insurers known as Obamacare, welfare queens like McDonalds and WalMart having employees who need to use food stamps and Medicare to get by, local subsidies in the form of tax breaks for new plants and super stores.

      And the rich that work that hard work that hard because they LIKE to, not because they need to. McKinsey partners have to be pushed out the door. Ditto Goldman partners. Richard Bonderman of TPG is 70 and Henry Kravis is well past retirement age. David Boies is 73. These guys work because they love the power and the game, not because they are oppressed.

      1. Jack King

        By returns of “equity barons”, I assume you mean the top capital gains rate (20%), and it should be higher. There is a dark side to raising taxes. Many of these investments are very risky, but if the risk pays off it results in big gains. If they have a winner, it also means many jobs. If they are not, they lose money. If you reduce the reward in risk taking by raising the tax, there will be less investing. This will ultimately affect the middle class much more than the rich. Fire destroys that which feeds it…so do taxes. By the same token, much of these gains are phantom. If I invest in a house and it goes up 10% in 3 years when I sell, the inflation rate may have also gone up 10%. Thus, in reality there is no gain….yet I am still taxed.

        The fact that the rich like their work and that is why they put in all those hours, is everyone’s goal. How many people get out of bed monday morning and say, “Oh boy, another day of work.” That is part of the American Dream. I would give them a high five. But it seems I am in the minority. Others seem to want to sneer at their success and envy them. So be it.

        There is little doubt that income inequality is getting worse. There are three primary reasons for this. A global economy, explosion of technology, and (as Dan mentioned), the exponential growth of single parent households. Not sure what the solutions are, but policies like raising the inheritance tax as the article points out is a misguided band-aid.

        1. Vatch

          ” If they have a winner, it also means many jobs.”

          I must dispute this. Jobs are created by customers, not by investors. The level of investment is utterly irrelevant if the customers aren’t there. Businesses aren’t the job creators; customers are the job creators.

          “If I invest in a house and it goes up 10% in 3 years when I sell, the inflation rate may have also gone up 10%. Thus, in reality there is no gain….yet I am still taxed.”

          Simple solution: exempt the proceeds below a particular threshold of the sale of a primary residence from the capital gains tax. Then ordinary homeowners won’t be harmed if capital gains taxes are raised on equities.

          “Not sure what the solutions are, but policies like raising the inheritance tax as the article points out is a misguided band-aid.”

          Raising the inheritance tax is only part of the solution, but it is a necessary part. It’s definitely more than a band-aid. Massive inheritances make anything approaching “equality of opportunity” a complete sham.

          1. Jack King

            “I must dispute this. Jobs are created by customers, not by investors.”

            Really? What customers were there for the Iphone and Ipad before Steve Jobs came up with the idea?

            “Simple solution: exempt the proceeds below a particular threshold of the sale of a primary residence from the capital gains tax.”

            Just primary residents? Look, all assets hopefully grow in value. But one should only be taxed on real inflation adjusted growth. The fair policy is to index all assets to inflation.

            Massive inheritances make anything approaching “equality of opportunity” a complete sham.

            How does passing the fruits of my labor to my child affect your child’s opportunities?

            1. Vatch

              The iPhone customers were all born before Apple employees (not the sociopathic marketer Steve Jobs) came up with the iPhone and iPad. And without those customers, the jobs would have dried up very quickly.

              There’s a case for indexing capital gains to inflation. But if that’s done, then the capital gains rate must be far higher than it is now. This is unearned income we’re discussing; it’s part of the fake economy of finance, not the real economy of goods and services. And Yves’s point about carried interest is very important.

              You must be joking about inheritance not affecting other peoples’ opportunities. If one person’s child inherits a hundred million dollars, than that child has an enormous advantage over all of the other children who don’t inherit a fortune. I’m not going to waste time explaining the ways that having more money gives a person advantages over other people.

              I’m okay with some inheritance being exempt from taxation, even though any inheritance eliminates “equal opportunity”. Anyone who seriously believes that America should be the land of equal opportunity must necessarily support a 100% inheritance tax, no matter how large or small the inheritance is. That’s not my position, but it is the logical consequence of the “equal opportunity” idea.

              1. Jack King

                The iPhone customers were all born before Apple employees (not the sociopathic marketer Steve Jobs) came up with the iPhone and iPad.

                People were born first. They become customers later.

                his is unearned income we’re discussing; it’s part of the fake economy of finance, not the real economy of goods and services.

                I’ve heard this slanted logic in this group before. Answer this for me. What are the elements that comprise GDP (hint: One of them starts with the letter “I”)

                You must be joking about inheritance not affecting other peoples’ opportunities. If one person’s child inherits a hundred million dollars, than that child has an enormous advantage over all of the other children who don’t inherit a fortune.

                That’s zero sum logic. What about the person that inherits a higher IQ than someone else? What about the person who inherits greater athletic skills than someone else? What about the one who inherits better looks than someone else? What about the ones that inherit a better work ethic than someone else? These are all accidents of birth. It just isn’t fair. Ipso facto, what are you going to do about all this unfairness???

                Here is something to chew on:

                “The worst form of inequality is to try to make unequal things equal.” — Aristotle

                1. cwaltz

                  If you don’t like the word customers then use DEMAND as the motive for job creation. The reality is investment is a means, not a motive for growth.

                  In the 90s Apple lost market share. Investment declined. Apple not only didn’t create jobs. It removed them. It was because of loss of market share though, not loss of investment. As a matter of fact investors didn’t return to Apple until 2003 well after the release of the IPod and it’s decision to create a digital download market. Innovation came first. Investment second.

                  Furthermore, you seem to be missing the fact that when Apple started it wasn’t initially fueled by investment. It was fueled by the belief of three guys that they had a product that people would want. It wasn’t until they’d created a product and were able to pitch it as such that an investor stepped up to the plate and helped them.

                  1. Ben Johannson

                    It’s a common misperception on the right that capital somehow preceeded the birth of the universe when in reality it must first be accumulated from the labor of others.

                    1. Jack King

                      Really?! So I save my money while working for an employer who pays me a good salary. Eventually I have enough, along with some friends who throw some money into the pot (venture capitalists), to begin a project out of my garage. I lose money for a couple of years, but reach break-even in the 3rd. I then start to grow. I begin to hire people….I’m back to breakeven, but I now have a foothold in the market. I hire more people. Now I am actually making a profit. I hire more people and incorporate. I’m off to the races. This is a common scenerio with start-ups. Labor was paid long before there was any return on capital. But the initial pot of money which was very much at risk came first.

                  2. Jack King

                    In the 90s Apple lost market share. Investment declined. Apple not only didn’t create jobs. It removed them. It was because of loss of market share though, not loss of investment.

                    Of course….they had lost the PC wars to Microsoft. The only reason investment dollars would flow to Apple then was if they had won, and they needed to expand to meet demand. Would you invest in a company that is losing market share? As far as innovation is concerned, nothing will happen unless there are people who are willing to risk their capital to fund the development and marketing of the product/service.

                2. Vatch

                  “That’s zero sum logic. What about the person that inherits a higher IQ than someone else? What about the person who inherits greater athletic skills than someone else? What about the one who inherits better looks than someone else? What about the ones that inherit a better work ethic than someone else? These are all accidents of birth. It just isn’t fair. Ipso facto, what are you going to do about all this unfairness???”

                  You’re changing the subject and setting up a straw man argument. I don’t propose to do anything about people’s biological differences. I’m objecting to the huge artificial economic advantages that some people have. I can’t think of anyone who is so much more valuable than other people that he or she is entitled to become a billionaire. There’s nothing wrong with paying some people more for some kinds of work or for performing better than others who do similar kinds of work. What’s wrong is the extreme differences in pay and other income that our society allows, and the way that this unfairness is passed from generation to generation.

                  1. Jack King

                    “What’s wrong is the extreme differences in pay and other income that our society allows, and the way that this unfairness is passed from generation to generation.”

                    George C. Scott got 10’s of millions for his Academy Award winning performance in “Patton”. But the key grip and wardrobe assistant’s income was practically nothing in comparison. Pretty unfair isn’t it. What should we do about it?

                    1. Jack King

                      Vatch…is raising the marginal rates going to be good for the economy, or will it have negative effects? To raise taxes for the sole reason of “tucking it to the greedy rich” is not good policy.

                    2. Vatch

                      High marginal rates didn’t hurt the economy when Eisenhower was President, and low marginal rates don’t seem to have done any good for the economy recently. When the ultra rich have too much money, they don’t hire people. Instead, they “invest” in weirdo derivatives. Their money never trickles down; it’s like the typical rainstorm in Arizona — the rain may fall, but it evaporates before it reaches the ground.

                      Let me anticipate an objection. I think it’s perfectly appropriate to index the tax brackets to inflation. Let’s just be sure that the highest brackets are well above their current levels.

                    3. Jack King

                      What we need is a growing economy. I’m sure you have heard of Christina Romer, the head of Obama’s Council Of Economic Advisors in his first term. She studied tax cuts from 1947 to 2005 and she found that a cut equivalent to 1% of GDP resulted in a 3% growth in GDP if those tax cuts were permanent.

                      As far as high marginal tax rates in the 1950’s, it was a completely different world then. The infrastructure of the major economies of the world had been destroyed. That is….everywhere but here. Today we are dealing with a global economy. To compare the 21st century environment to that of the mid-20th century is complete apples and oranges.

                    4. Vatch

                      I don’t trust any economist who worked for Obama (or Bush or Clinton). They just say what the rich political donors want to hear.

                      What we need is a reduction in inequality, so that there can be more customers who buy products and create jobs. Perhaps you should read more of the articles that are posted here at Naked Capitalism.

                    5. Jackrabbit

                      Recent studies have shown that extreme inequality is not good for the economy.

                      Wealth inequality causes malinvestment, reduces demand, and has other deleterious effects (e.g. excessive political influence leads to lower quality of life and more mail investment).

                      And new tech entrepreneurs like Steve Jobs are a very small part of the economy.

                      Those who argue for lower taxes NEVER think they are low enough.

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                    6. Jack King

                      Vatch….then give me the names of some economists that you would trust….and please no politicians…they are mostly lawyers (God help us).

                      Jackrabbit….I agree that extreme inequality is bad. But the US has a Gini ratio of 47 which is far from extreme.

                    7. Vatch

                      I think Ha-Joon Chang, James K. Galbraith, and Thomas Piketty seem to be pretty good. Since I’m not an economist, I’m sure I’m missing several other good ones.

                      Regarding the U.S. Gini coefficient, I think that Americans should be embarrassed that Russia, the home of archetypal oligarchs, has a more equal Gini income coefficient. Also, the U.S. wealth Gini coefficient is worse than the income Gini:

                      http://en.wikipedia.org/wiki/List_of_countries_by_distribution_of_wealth

                    8. Jack King

                      First, Russia has a 11% FLAT income tax. The reason why that is an issue is because if we look at the US Gini AFTER taxes and transfers, it drops down to 38. Recall that Jackrabbit used the phrase “extreme inequality”. That just does not exist in this country. Extreme would be in countries like Brazil (high 50s) and Nelson Mandela’s South Africa (low 60s).

                    9. Jack King

                      According to your own chart, the wealth Gini for the US is virtually equal to the world wealth Gini:

                      World .804
                      US .801

                      This, of course, does not really reflect reality. Economists clearly prefer income inequality to asset inequality. A couple of illustrations may help.

                      1. A couple buys a house 40 years ago at a very low price. After 30 years the mortgage is paid off. But the house keeps appreciating in value. However, the husband dies with only a modest pension and social security. With the income, the widow can barely pay the taxes and insurance. She is asset rich, but income poor.

                      2. A guy nets $300,000/yr before taxes. But he spends like a drunken sailor, saves very little and invests nothing. He rents a big house and has two cars…one with high mileage, and the other a loan. He also has high credit card debt. Because he manages his income very poorly (not uncommon in 21st century America), he is asset poor. He could even have a negative net worth. With his income, this does not reflect reality.

                      BTW, income inequality is increasing globally, not just in this country.

                    10. Vatch

                      Sure, some people are responsible, and some people are irresponsible, and that leads to differences in wealth and/or income. The subject that we have been discussing is the extreme levels of inequality in the U.S. and elsewhere. Nobody is so important that he or she deserves to be a billionaire. I even question whether anyone deserves to have $100 million. Any country with such super rich people has a broken system.

                      I don’t object to lower level millionaires.

                      I think we’re just talking past each other, so I think I’m done with this discussion. I’ll just add one economist to my list of good ones: Herman Daly. Have a nice weekend.

                    11. Jack King

                      . Nobody is so important that he or she deserves to be a billionaire. I even question whether anyone deserves to have $100 million. Any country with such super rich people has a broken system.

                      Deserves? In the US today, 20% of the income of the top earners is taken from the rich and transferred to the poor. Is it because the poor deserve it? Of course not. It is because as a society we feel that it is the correct thing to do. Should we then go a step further and confiscate any accumulated wealth over $100 million? Nope…not yet. If we did, you would see a rapid transfer of wealth out of the country to safe havens. This would result in a severe blow to the economy as financial markets would be seriously impacted. In the end, by trying to sock it to the rich, it would be the poor and middle class who would suffer.

                  2. Vatch

                    It’s not surprising that the Russian oligarchs insist on a low tax rate. As for the U.S., we have decabillionaires and completely destitute homeless people. That seems pretty extreme to me. From the Wikipedia Gini article:

                    http://en.wikipedia.org/wiki/Gini_coefficient#Limitations_of_Gini_coefficient

                    “A Gini index does not contain information about absolute national or personal incomes. Populations can have very low income Gini indices, yet simultaneously very high wealth Gini index. By measuring inequality in income, the Gini ignores the differential efficiency of use of household income. By ignoring wealth (except as it contributes to income) the Gini can create the appearance of inequality when the people compared are at different stages in their life. Wealthy countries such as Sweden can show a low Gini coefficient for disposable income of 0.31 thereby appearing equal, yet have very high Gini coefficient for wealth of 0.79 to 0.86 thereby suggesting an extremely unequal wealth distribution in its society. These factors are not assessed in income-based Gini.”

                    As I pointed out, the U.S. Gini coefficient of wealth is much more unequal than the U.S. income Gini coefficient.

        2. Yves Smith Post author

          Wow, reading comprehension fail.

          I said PRIVATE equity barons. The treatment of their “carried interest” which is a profit share for their labor, through the accommodation of limited partners to their tax gaming, allows them to get labor income taxed at only a capital gains rate. This is a well-known, regularly derided tax loophole that pretty much everyone except the PE guys themselves agree is an abuse and should be fixed.

          1. Jack King

            Sorry….That’s why I used the phrase “I assume”….wasn’t really sure. It does sound like a loophole that needs to be closed.

      1. debt serf

        The hardest part of the wealth inequality is that it feels so hard for everyone else to get ahead. My household income is in the top 10% of all in the country, yet we work 90 hours a week between the two of us.

        However, with insane housing costs, child care and all of life’s other expenses, it’s difficult to save any real substantial amount of money. Then add in the amount we’ve paid in student loans in the last 10 years (upwards of $150,000 principal and interest) plus the $85,000 I still owe, and it’s no secret why we can make $100k a year and feel like it’s tough to get ahead. That $150k we’ve gifted to Sallie Mae’s Al Lord so he can have his own private golf course outside DC could have gone into the stock market and it would be worth over $300k today. Instead, I just reached a Zero net worth earlier this year and I’m nearly 40.

        I don’t have a spending problem, i live within my means, but it’s tough to compete with teh finance guys who get $500k bonuses, or the private equity guys who pay only 20% taxes. I know the game is rigged, but today’s situation doesn’t even try to hide it.

        1. cwaltz

          Living within your means doesn’t mean what you think it does. If you “lived within your means” then you wouldn’t be struggling to pay back DEBTS for school or paying on a hefty mortgage you took out so you can live on a golf course. If you have debt than at one time you spent more than you earned. I understand that at the time you thought it would be a breeze to pay back. Unfortunately, spending money we don’t have is way easier than the drudgery of actually having to pay it back.

          1. jrs

            I suspect they live in an expensive part of the country and that’s why their means don’t go far, and it doesn’t necessarily mean they live on a golf course. And expensive parts of the country are especially and far beyond their numbers in the population dominated by the rich, NYC by Wall Street, around D.C. by Washington insiders, the Bay area by Silicon valley, L.A. by Hollywood and so on.

            1. cwaltz

              I agree. One of the reasons our family left California was it’s affordability. I do wonder why someone with the means to command a $100,000 salary doesn’t look for other opportunities somewhere less expensive.

              People need to understand I’m not trying to be mean to debt serf. I’m trying to look at the situation realistically and mentioning that people should see this as a cautionary tale. The lords of finance could care less whether or not someone can afford something. All they care about is their bottom line. The best hope people have is to start exercising the same self interest.

              Anyone who knows me also knows I have two young adults(soon to be 3 at home and shortly thereafter 4) so I’m sympathetic to the cost of education. My eldest initially wanted to teach. We sat down and looked at the economics of the choice and decided that if he wanted that he’d have to earn the money up front so he wouldn’t be saddled with debt. At first, I’m sure I was the mean and horrible mommy for not telling him what he wanted to hear. However, several years later he’s looking at trying to do something he loves(teaching) within the confines of an already established business without the debtload. He may even be able to attend some of his schooling on the company dime. My daughter is more pragmatic. She wanted to be a dental hygienist and attend massage therapy. Again, I didn’t finance it. We researched how she’d pay for it. She got a job. It’s been a year and a half and thanks to her work ethic she now has the means for school. Guess what though? She changed her mind on being a dental hygienist(whew sure am glad I didn’t waste my money on a career that wouldn’t have made her happy.) Instead she’s decided she wants her own place. So she’s in the process of putting money away towards that dream(plus extra for the inevitable curve ball Murphy will throw). Have both of my children been lucky? To some extent. Mom and Dad can afford to help them now(there was a time I was donating my plasma and clicking on point programs to help pay the bills.) I personally feel FINANCING an education is a bad choice. Should society pay for schooling for people if they want it? I’m not sure. Maybe if we created some rules. However, in the here and now we have an educational system that will bleed you dry and not necessarily leave you with anything to live on. I feel bad for debt serf. However, my sympathy and a nickel won’t buy their household much and you can’t undo what’s already been done. My best advice to them would be to start combing the help wanted ads and looking for opportunities where things are cheaper. It won’t eradicate the debt but it will definitely eliminate the competing with the well heeled and well connected. There are areas of the country where they might not get the $100,000 but what they do get will go farther and that may make the difference.

          2. Carla

            cwaltz, I think you’re being unfair. It’s unlikely debt serf and his spouse would be earning their $100,000 per year had they not gone to college.

            “If you have debt than at one time you spent more than you earned.” Sometimes people are forced into this position by a job loss or medical calamity. Who, exactly, are you to judge them?

            “I understand that at the time you thought it would be a breeze to pay back. Unfortunately, spending money we don’t have is way easier than the drudgery of actually having to pay it back.” cwaltz, how do you know what other people think or were thinking at any given point in time?

            debt serf is responsibly meeting his obligations. I am surprised by what seems a lack of compassion on your part, but I do not pretend to know what you are thinking.

            1. cwaltz

              I’m not judging at all. The definition of living within ones means is EXACTLY what I said. It means that you don’t take on debt for items that you don’t have the money for. That’s not a judgement, it’s a fact.

              Debt serf doesn’t say anything about a medical malady(which by the way COULD be discharged in a bankruptcy). He/She says that they have a buttload of debt because of schooling. Some might say, well they wouldn’t make $100,000 a year if they hadn’t had attended college. However, they ALSO wouldn’t have massive student loans that diminish the value of that $100,000 a year job. It was a choice that was made. And not an uncommon one. Additionally, I’m not going to feel sorry if someone CHOOSES to buy a house on a golf course because they have to PAY for it. The reality is many people in this country don’t live in fancy houses or command salaries that are twice the median. They’ll never own ANY house. So you’ll have to forgive me if it seems mean that I have less sympathy for someone who DOES have their dream home and is now upset because making that choice means they have to downsize their other wants while they pay for it. It’s opportunity cost. I’m guessing that they didn’t attend an Econ 101 class or they’d have been prepared for it.

    2. MyLessThanPrimeBeef

      Every exit is an entry somewhere else.

      And Life is a series of exits and entries.

      You exit the womb and enter the world.

      You exit the 5th grade and enter the 6th grade.

      You exit fund raising and enter the election.

      Equal opportunity, when?

      Do we all start life with equal opportunity for everyone? We don’t. A billionaire’s son or Noble laureate’s daughter is already ahead on Day 1.

      Even if we did start life with equal opportunity, after step 1, with unequal outcome, we would then start step 2 no longer with equal opportunity for everyone (because results from step 1 would carry over into step 2 – that’s how life works).

      And advantages and disadvantages accumulate through every additional step in life….when you take the SAT test, when you interview for your first job at Goldman, when you are a finalist to head the Federal Reserve…

      EQUAL OPPORTUNITY is simply a myth.

      On the other hand, food is the outcome of hunting/gathering/farming. If you agree that no one should starve is an equal outcome, then you are for equal outcome (for this particular ‘obtaining food’ step – or process – in life).

      1. beene

        That is the intended purpose of government in a democratic society. As all are different with different skills in any society. Not what we have today which is a totally socialistic system for banking, corporations, and the Federal Reserve.

      2. Carla

        “You exit fund raising and enter the election.”

        Sorry, Prime. That step never happens. You never, EVER exit fundraising. After all, our “democratically elected” representatives spend 70 percent of their time in office fundraising (and the other 30 percent doing the bidding of their benefactors).

        1. MyLessThanPrimeBeef

          You’re right.

          I was thinking public funding with limits on campaign spending…for example, a national limit of $20 million plus COLA for all candidates would be equal outcome of fundraising.

          Here, we guarantee equal outcome again (opportunity = to raise fund; outcome = dollar amount to spend).

    3. trish

      Boil our grotesque income inequality here down to who works hard. wow.
      Never mind all those pesky complexities such as gross political corruption including government (including regulatory) capture and revolving door, and media capture, and a history replete with utter criminality re discrimination that continues today, and research-based knowledge of child development and…one could go on and on here. But no, it’s just who works. harder. (or, gosh, at all…those lazy poor…)

      And “seeking to equalize outcomes is, well, decidedly un-American.”
      Really…says who?!! How do you so narrowly define what it means to be “American,” today, 2014?
      I really don’t get that way of seeing the world…self-interested propagandists defining what’s “American” is.

      1. jrs

        To make it about who deserves what and what is earned is to argue on the right’s terms. And then one can argue they are wrong for reason x y z (QE123 of banker bailouts is reason enough), but it’s to accept their terms before even starting. What are the left’s terms? Darned if I know. I might start with worker empowerment (not what capitalists deserve), and a society that is more likely to actually lead to human thriving etc..

    4. Carla

      Dan, Let’s inject a little bit of logic here: Do you want to live behind a moat in a feudal country where the latest epidemic of viral disease threatens you and your family if you have any contact with the servants at all?

      Sounds as if you really do. Or you and your ilk just haven’t thought this through.

    5. Ulysses

      Point #2 is simply false. The Waltons, the Kochs, the Rockefellers, the Pritzkers, Duponts, Johnsons, etc. like all of the very wealthiest families, inherited their wealth. It is true that working poor people are at their poorest when out of work, yet when they can find it they too work insane hours, at low wages, just to survive, never mind pay tuition for their kids at fancy private schools.

    6. RUKidding

      Yes, Dan, people are poor simply and only because they are lousy lazy freeloaders, who cannot be bothered to find work. Face Palm! Why didn’t I realize that??

      1. curlydan

        Just tell the next poor person you pass on the street to get married and get a “dual tertiary-degreed background”

    7. MikeNY

      If you think we have anything close to equality of opportunity in contemporary America, either you are willfully blind, or you don’t get out much.

    8. Danb

      “Let’s inject a little bit of logic here. The promise of America is a fair start, an equal opportunity,” This is not logic; rather it is a statement of your value preference masquerading as immutable fact. And your claim to fairness is laughable.

      1. Martin Finnucane

        But the invocation of “logic” has a signaling function: what I say is serious, which is to say white and male. What you say is not-serious, which is to say non-white and female. I respect your feelings on this matter, but let’s not let those feelings obscure the plain logical truth, to which I have privileged (white, male) access.

        The funny part is that his little troll-spiel has nothing particularly logical about it, beyond the implied self-description. And naturally it reeks of red-baiting, the favored Libertarian form of ad hominem, a logical fallacy.

    9. cwaltz

      the “disparity” in how hard the wealthiest (compared to the poorest) work, has never been greater. today’s wealthiest families have dual income, dual tertiary-degreed backgrounds and each often work in excess of 50-80 hours a week. on the other end of the spectrum, the poorest tend to, well, not work, right?

      I’d like something other than your word that substantiates your claim that the richest work harder. In the top 10 of the richest in this country ,#4 the Koch brothers inherited much of their wealth. #6,7,9 and 10 are Waltons who also inherited a good bulk of their wealth.

      As for your statement that the richest have tertiary degrees, that’s a load of bunk as well. #3 Ellison went to Univ. Of Illinois only to leave his second year. He then attended one semester of the University of Chicago. Much of HIS wealth isn’t from working 50-80 hours but from the fact that he gets a ridiculous amount of stock options – oh and apparently because he’s not afraid to get his hands dirty by engaging in insider trading. #1 on the list, Mr Gates, dropped out of Harvard. His claim to fame is anti competitive behavior, which has been documented in court. That leaves us with #8, Mr Zuckerberg, ALSO dropped out of college and had absolutely no problem with integrating stolen ideas to create his pride and joy.

      So 10/10 of the top 10 wealthiest people are not anything like you describe in your little diatribe.

      1. Vatch

        This statement of Dan’s is both offensive and mostly wrong:

        the poorest tend to, well, not work, right?

        Well, I guess the very poorest don’t work, but that’s because they’re unemployed. Duh. However, many poor people do work, and a lot of them work very hard. Some of them have two or three jobs. After working their low paying jobs, they have to take care of things at home. Many rich people don’t have worry about taking care of their home(s). They can pay one person to mow the lawn, another person to clean their house, and even if they don’t have a cook, they can afford to go to a restaurant 7 or 14 times per week. When low income peoples’ unpaid domestic labor is included with their labor for (low) pay, it’s likely that most of them work harder than the rich do.

        1. Carla

          Vatch, please add to this that most of the working poor must spend 3 hours or more each day just getting to and from work using public transportation. A bus that fails to arrive on time (or at all) can result in be fired from your job. The demands of survival and the sheer stress endured by poor people would sink a middle class or wealthy person in a day or two, I’m sure.

    10. cwaltz

      government efforts to “level the playing field” end up becoming a lottery – because the government cannot allocate infinite resources, eventually even the resource redistribution itself will become tainted and the managers of that process will be the “new” 1%, as we saw in Russia, China and NoKo.

      You mean similar to the type of “lottery” that determines who gets who for a parent? As I pointed out, only 3 out of 10 of the top 10 richest people in the country are “self made.” And by self made I mean they actually started a business rather than inherited one from mommy and daddy.

    11. James Levy

      I dare you: who works more, a person out in a broccoli field in the Imperial Valley doing stoop labor, or a guy sitting in a huge office on Wall Street who can expect three terrific squares a day, a driver, all his laundry and dishes done by somebody else, and the best medical care conceivable? Your “poor don’t work” bullshit is just that–bullshit. You see, we have this huge class of people in the USA who work on farms, in factories, at Wallmart, driving trucks, working barges on the Mississippi, who work really hard under rotten conditions and they don’t make 1-1000th what your CEO or Hedge Fund shark makes living and working under superb conditions by any rational comparison.
      But hey, if those CEO jobs are so hard, so arduous, so punishing, why don’t those CEOs give up their overworked existence and go become tellers in their banks working 40 hours a week? I mean, according to you the tellers must have it good, because by comparison they are poor. So how many men and women give up those overworked positions to become tellers or janitors or ditch diggers–you know, the easy jobs?

    12. Mags

      I guess I don’t see how this article is attempting to “equalize outcomes.”

      This article specifically addresses the rising debt amongst the middle and lower classes, which impedes their ability to save. It further speculates:

      If income inequality stays high and if the saving rate of the bottom 90% of families remains low then wealth disparity will keep increasing. Ten or 20 years from now, all the gains in wealth democratisation achieved during the New Deal and the post-war decades could be lost. While the rich would be extremely rich, ordinary families would own next to nothing, with debts almost as high as their assets. Paris School of Economics professor Thomas Piketty warns that inherited wealth could become the defining line between the haves and the have-nots in the 21st century (Piketty 2014).

      In these instances, the article is addressing the circumstances, not the outcome. The author is not attempting to equalize the outcomes, but rather, simply equalize the circumstances, allowing the middle and lower classes more opportunities to save.

      For example, look at students graduating from law school. A law school student from a middle or lower class family that could not afford to help with tuition can easily have over 200,000.00 in student loans. In contrast, if a law school student comes from a family with the ability to pay the tuition, that student begins his or her career debt free and able to immediately begin saving. In that instance, regulations on lending and student loans will help equalize the beginning circumstance — how hard the students work and how much they save is subsequently up to them, those debt policies will not impact that outcome.

      I also find your point no. 2 to be completely speculative and based a nothing more than pure stereotypes and assumptions.

    13. Jim Shannon

      When the oppressed defend the oppressors, it is a clear sign the oppressors are in control!
      Rule of Law does not exist – the proof is everywhere you look! Property Law is more important than everything!
      The Personal Wealth of the .01% has clearly corrupted the World! The .01% have always been the purveyors of corruption which ultimately lead to revolutions and wars!
      The .01% write the Tax Code – it is the TAX CODE that has created the inequality.
      The oppressed too brainwashed to demand meaningful change!

    14. Some Guy

      “The promise of America is a fair start, an equal opportunity, but not a guarantee of an equal outcome.”

      Not true, that’s just another lie the 1% have sold you. See “The Revolt of the Elites” by Christopher Lasch for the whole story. Short version – equality of opportunity is already the dumbed down version of the original American Dream.

  4. trish

    “more generally steps to boost the wages of the bottom 90% of workers ”

    well, and maybe in particular (!) those not even fortunate enough to be “merely rich,” with “only a few millions.”
    Jeez…or even incomes of several thousand…
    A lot of those a little bit more needy of concern and wage-boosting out there…

  5. cnchal

    How can we explain the growing disparity in American wealth?

    When the .01 % send production to China, where slavery is the standard method of operation, they keep the difference in what something would have cost to make here, with what it costs to make there. Extreme exploitation, with Apple and Walmart as the poster children.

    Economists. Always missing the real reasons. Sending tens of millions of “wealth creating” jobs to China and destroying the value of labor through globalization, isn’t even worth a mention.

    One final reform also needs to be on the policymaking agenda – the collection of better data on wealth in the US.

    Is that so economists have more “jawb” opportunities? I can see them running around pulling their hair and screaming “we need more data”, “we need more data”, “otherwise how will we know what to doooooo”.

    . . .and more generally steps to boost the wages of the bottom 90% of workers are needed so that ordinary families can afford to save.

    The banks speculate in financial markets because if they didn’t, they would die. How does everyone feel about having their retirement savings riding right alongside central bank supplied funny money?

    Saez and Zucman are particularly concerned that this level of wealth inequality is on its way to becoming entrenched.

    Catch 22. How can the super rich be taxed more when they own the politicians that make the tax laws?

    1. James

      Not yet, but it’s getting closer every day. Alas, capitalism has not quite yet succumbed to the cancer of its own contradictions. But it’s definitely on death watch.

  6. ScottW

    Yves–I wish you would submit an op-ed to the NYT’s summarizing the content of this piece. So many readers reflexively support Obama and the Dems on the economy. Yesterday, a reader posted a comment with 12 or so facts about all of the great economic gains under Dems. His stats ended in 2007, but he still credited Obama for an economic recovery. What really caught my eye was the following graph: “Since the housing and financial crises of the late 2000s there has been no recovery in the wealth of the middle class and the poor. The average wealth of the bottom 90% of families is equal to $80,000 in 2012 – the same level as in 1986. In contrast, the average wealth for the top 1% more than tripled between 1980 and 2012. In 2012, the wealth of the top 1% increased almost back to its peak level of 2007.”

    The Great Recession looks only like a small bump along an upward trajectory. A little context from an expert like you to the masses would be most appreciated.

  7. RUKidding

    But is the rise in US economic inequality purely a matter of rising labour compensation at the top, or did wealth inequality rise as well?

    In late 2014, I don’t even get why this question is asked. I’m an economics dumbo, but really? We need to keep asking and asking this question? And come up with the same graphs and charts to prove what’s been evident since the Reagan years? The 1% have rigged and gamed the system in numerous ways, and the rest of us are up the creek without a paddle . That’s the bottom line.

    What’s the solution? Well FAIR taxation would be the first step, but how that can occur is the grinding question since: The 1% have rigged and gamed the system in numerous ways, and the rest of us are up the creek without a paddle.

    Sadly, the majority of USians have been dumbed down and made ineffective by the ongoing effects of propaganda pumped out 24/7/365 in various “media.” But even the dumbest are starting to cotton onto the fact that we’ve all been “had” by the mega-wealthy.

    There is nothing fair or “equal” about the system – whether one looks at the beginning or the outcomes. It has never been a level playing field, but after FDR’s New Deal, the 99s had something of a better shot at an improved lifestyle. The incessant whining and crying about the “poorz” has been a great propaganda cudgel. The main ones living the life of true outrageous luxury are the 1%, who are the biggest freeloaders obtaining huge amounts of govt welfare in various ways: paying low to no taxes for starters, plus getting loads of incentives for the mega-corporations, never having to follow whatever pathetic “regulations” existing anymore, etc etc.

    There’s graphs and charts a-plenty out there, What more can be said? The 1% have rigged the system; continue to pump out propaganda about poor people; and apparently some who are hanging on by their fingernails to the upper reaches of the 99% still wish to demonize the poor, while sucking up to and kissing the hinies of the mega-wealthy. Good luck with that. Everyone in the 99% is considered expendable by the 1%. Get over yourself.

    1. James Levy

      It could all be fixed relatively easily with a massively simplified income tax that starts at 5% over $50,000 and ends at 90% over $10 million dollars, plus an estate tax that starts at 5% over 2 million dollars and ends at 90% over $100 million dollars, with no trusts and no deductions beyond charity up to 10% of income. Problem is, such a system is completely impossible under the current political dispensation. As was stated elsewhere in this thread, without the threat of violent revolution that the upper class are sure they can’t suppress nothing like this is going to get instituted by a political order dominated by campaign contributors and intellectually beholden to neoliberalism or reaction. A solution to this problem is simple. A solution within the bounds of acceptable discourse is not.

      1. trish

        very effective strategy turning poor on other poor (key often being “other” in some way). Same with low income or low-middle on, say, those with government pensions or other benefits.

        strategies, propaganda all aided by our trusty MSM.

  8. Denis Drew

    If the top 1% income continues to receive all the economic growth, then, by the time the output per person expands 50% (25-30 years?) the top 1% income will “earn” half of a half-larger economy (25% + 50% = 75% of 150%). By the time output per person doubles (typically 40-50 years) the equation will read 25% + 100% out of 200% = 62.5% of a twice-as-large economy.

    Throw in Piketty’s wealth projections — inherited rentier incomes swallowing up even more income share (like the England of old) — and the bottom drops out for pretty much everyone.

  9. Enquiring Mind

    The current income/behavior trend echoes the rise of the aristocratic class at the start of the last millennium. In that era, the warrior chieftains ascended, with a coterie of helpers (what we know as knights, squires, etc).
    It took a Magna Carta moment to reorder that world somewhat, so who will be our King John and who will be the barons that will take the stage?

    1. Ulysses

      Interesting comparison! The major difference between today’s kleptocratic elites, and the feudal aristocracy in England after the Norman conquest, is that the former plunder and loot from within air-conditioned boardrooms, while the latter had to ride a horse and wield a sword or mace. The latter would even allow distressed peasants to occasionally shelter in their castles during troubled times. Have you ever heard of today’s filthy rich allowing wounded veterans, displaced workers, homeless, etc. into their mansions and gated communities?

  10. anonymous123

    I saw Saez give a lecture two weeks ago with Laura Tyson over at Berkeley, and it was fantastic. One person from the audience asked a great question–whether the state of inequality is perhaps ‘normal’ since in Saez’s classic graph we see two periods of high inequality but just the one period of low inequality post-WWII. (Saez said he certainly hopes inequality isn’t the normal state.) I thought what was interesting was the points Saez and Tyson agreed on and didn’t agree on for how to solve inequality. They both agreed on broad access to low-cost public education. But the point of disagreement was on how to tax wealth–Tyson didn’t think the government should tax corporations since corporate tax rates in the US are already unattractive, and that the government instead should tax dividends paid out by those corporations, for example.

    1. MikeNY

      Leaving aside the fact that few corporations pay the statutory tax rate, and the effective tax rate is usually much lower, Tyson has a point. If dividends and cap gains were taxed as ordinary income (with progressive rates applying), you could accomplish the goal of taxing the rich.

    2. susan the other

      That’s the question I considered when I saw how quickly the economy made that U turn. That’s some serious pent-up demand. It looks like escape. So why do we try to use the same old palliatives? There’s a long list of things we need to do. Yes we should tax the rich in some way. We should also give money directly to the poor. We should close loopholes for the rich and powerful. Clean up our “democracy.” And we should look at what money accomplishes. Who really needs Facebook? (speaking my own prejudices here) – Who needs cars? Who needs crappy, toxic food? Who needs 100 pair of shoes? Who needs planned obsolescence? Who prefers polluted air and water? This list is infinite. And it is a result of human industriousness without a rudder. We do need a rudder. The most important change we could make to get our economy to become rational, after creating equity in the tax laws, etc, would be to cease and desist with all our military adventures. Then use the military to clean up the planet for at least 100 years. Pour money into basic science. Stop manufacturing cars and stop driving them. Do serious recycling and conservation. And prosecute fraud. Now, oh dear. This will naturally put 90% of our oh-so meritorious big corporations out of business. But with all the good things going forward we’ll have plenty of employment. Unfortunately, the Koch bros will survive, but only because they manufacture lotsa toilet paper. The whole idea of the free market has gotta go unless we are willing to endure those big U-turns for infinity.

      1. anonymous123

        EXACTLY! When they were reading her bio at the start of the lecture I picked up on that one right away (being on the board of MS). I was actually really surprised that she spoke openly about redistributive policies at all, given that fact.

  11. Jim

    One important foundation for potentially increasing working/middle class wealth and simultaneously initiating a type of left populism calling for massive structural reform would be the articulation of the inherent tensions which exist between small owners of private property and corporations– with the simultaneous advocacy of widespread small ownership of productive property as a solution.

    It may be the case that corporate industrialism is actually corrosive to property ownership and that the more orthodox left has failed to draw a distinction between widely distributed small property and concentrated corporate property.

    Those who are potentially interested in developing a type of left populism could begin to argue that one of the foundations of a healthy society is a situation in which the means of production are widely owner rather than monopolized by a small economic/financial elite or the State.

    Small business and large corporations usually have conflicting interests and where the Tea party made a crucial ideological mistake was in giving almost complete uncritical support to a pro-business multinational corporate deregulation.

    A more populist vision( of property ownership as stewardship) might begin to provide an alternative to the orthodox right with its never-ending apology for Big Capital and the orthodox left-with its never ending apology for Big State.

  12. steelhead23

    One final reform also needs to be on the policymaking agenda – the collection of better data on wealth in the US.
    That made me laugh. Apparently the U.S. Government perceives that it is perfectly constitutional to listen in to its citizens conversations, and if Snowden is to be believed, to be titillated by phone-sex calls between military men on duty in foreign countries and their wives back home, but knowing exactly how much Uncle Warren has in his kitty is strictly private, verboten, and none of yer bizness.

    This is a great piece, but I would like to see a piece of the savings rate of the middle class. I feel that the government punishes me for saving and for not having a mortgage. I believe I currently get 0.25% on my savings account, while the interest I do earn is treated as ordinary income. Uncle Warren likely has an ROI in the teens and pays only capital gains (15%) on the part he cannot hide. The U.S. tax code strongly encourages folks to go into debt and raise a passel of kids – two key ingredients to generational poverty. Most folks see these deductions as benefits to the middle class. I am middle class and see them quite the opposite.

    But you know – before any of the good ideas presented above can become a reality, we must overcome, perhaps through a constitutional amendment, Citizens United. Not that we shouldn’t try before then, but I chances of success would be much higher were democracy restored.

  13. rfdawn

    On that graph it looks like 25% wealth is peak loot for the 0.1% and after that it’s all downhill. Let’s not warn them.

  14. TG

    Hey, import massive numbers of third-world refugees, create 100 desperate people competing for every job, the rich get richer and the rest of us get crushed into the dirt. Supply and demand, people, SUPPLY AND DEMAND.

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